[Title 7 CFR ]
[Code of Federal Regulations (annual edition) - January 1, 2004 Edition]
[From the U.S. Government Printing Office]



[[Page i]]



                    7


          Parts 1900 to 1939

                         Revised as of January 1, 2004

Agriculture





          Containing a codification of documents of general 
          applicability and future effect
          As of January 1, 2004
          With Ancillaries
          Published by:
          Office of the Federal Register
          National Archives and Records
          Administration

A Special Edition of the Federal Register

[[Page ii]]






                     U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2004



  For sale by the Superintendent of Documents, U.S. Government Printing 
                                  Office
  Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC area 
                              (202) 512-1800
      Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001

[[Page iii]]




                            Table of Contents



                                                                    Page
  Explanation.................................................       v

  Title 7:
    Subtitle B--Regulations of the Department of Agriculture 
      (Continued)
          Chapter XVIII--Rural Housing Service, Rural 
          Business- Cooperative Service, Rural Utilities 
          Service, and Farm Service Agency, Department of 
          Agriculture (Continued)                                    5
  Finding Aids:
      Table of CFR Titles and Chapters........................     341
      Alphabetical List of Agencies Appearing in the CFR......     359
      List of CFR Sections Affected...........................     369

[[Page iv]]





                     ----------------------------

                     Cite this Code: CFR
                     To cite the regulations in 
                       this volume use title, 
                       part and section number. 
                       Thus, 7 CFR 1900.1 refers 
                       to title 7, part 1900, 
                       section 1.

                     ----------------------------

[[Page v]]



                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
permanent rules published in the Federal Register by the Executive 
departments and agencies of the Federal Government. The Code is divided 
into 50 titles which represent broad areas subject to Federal 
regulation. Each title is divided into chapters which usually bear the 
name of the issuing agency. Each chapter is further subdivided into 
parts covering specific regulatory areas.
    Each volume of the Code is revised at least once each calendar year 
and issued on a quarterly basis approximately as follows:

Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1

    The appropriate revision date is printed on the cover of each 
volume.

LEGAL STATUS

    The contents of the Federal Register are required to be judicially 
noticed (44 U.S.C. 1507). The Code of Federal Regulations is prima facie 
evidence of the text of the original documents (44 U.S.C. 1510).

HOW TO USE THE CODE OF FEDERAL REGULATIONS

    The Code of Federal Regulations is kept up to date by the individual 
issues of the Federal Register. These two publications must be used 
together to determine the latest version of any given rule.
    To determine whether a Code volume has been amended since its 
revision date (in this case, January 1, 2004), consult the ``List of CFR 
Sections Affected (LSA),'' which is issued monthly, and the ``Cumulative 
List of Parts Affected,'' which appears in the Reader Aids section of 
the daily Federal Register. These two lists will identify the Federal 
Register page number of the latest amendment of any given rule.

EFFECTIVE AND EXPIRATION DATES

    Each volume of the Code contains amendments published in the Federal 
Register since the last revision of that volume of the Code. Source 
citations for the regulations are referred to by volume number and page 
number of the Federal Register and date of publication. Publication 
dates and effective dates are usually not the same and care must be 
exercised by the user in determining the actual effective date. In 
instances where the effective date is beyond the cut-off date for the 
Code a note has been inserted to reflect the future effective date. In 
those instances where a regulation published in the Federal Register 
states a date certain for expiration, an appropriate note will be 
inserted following the text.

OMB CONTROL NUMBERS

    The Paperwork Reduction Act of 1980 (Pub. L. 96-511) requires 
Federal agencies to display an OMB control number with their information 
collection request.

[[Page vi]]

Many agencies have begun publishing numerous OMB control numbers as 
amendments to existing regulations in the CFR. These OMB numbers are 
placed as close as possible to the applicable recordkeeping or reporting 
requirements.

OBSOLETE PROVISIONS

    Provisions that become obsolete before the revision date stated on 
the cover of each volume are not carried. Code users may find the text 
of provisions in effect on a given date in the past by using the 
appropriate numerical list of sections affected. For the period before 
January 1, 2001, consult either the List of CFR Sections Affected, 1949-
1963, 1964-1972, 1973-1985, or 1986-2000, published in 11 separate 
volumes. For the period beginning January 1, 2001, a ``List of CFR 
Sections Affected'' is published at the end of each CFR volume.

CFR INDEXES AND TABULAR GUIDES

    A subject index to the Code of Federal Regulations is contained in a 
separate volume, revised annually as of January 1, entitled CFR Index 
and Finding Aids. This volume contains the Parallel Table of Statutory 
Authorities and Agency Rules (Table I). A list of CFR titles, chapters, 
and parts and an alphabetical list of agencies publishing in the CFR are 
also included in this volume.
    An index to the text of ``Title 3--The President'' is carried within 
that volume.
    The Federal Register Index is issued monthly in cumulative form. 
This index is based on a consolidation of the ``Contents'' entries in 
the daily Federal Register.
    A List of CFR Sections Affected (LSA) is published monthly, keyed to 
the revision dates of the 50 CFR titles.

REPUBLICATION OF MATERIAL

    There are no restrictions on the republication of material appearing 
in the Code of Federal Regulations.

INQUIRIES

    For a legal interpretation or explanation of any regulation in this 
volume, contact the issuing agency. The issuing agency's name appears at 
the top of odd-numbered pages.
    For inquiries concerning CFR reference assistance, call 202-741-6000 
or write to the Director, Office of the Federal Register, National 
Archives and Records Administration, Washington, DC 20408 or e-mail 
[email protected].

SALES

    The Government Printing Office (GPO) processes all sales and 
distribution of the CFR. For payment by credit card, call toll free, 
866-512-1800, or DC area, 202-512-1800, M-F 8 a.m. to 4 p.m. e.s.t. or 
fax your order to 202-512-2250, 24 hours a day. For payment by check, 
write to the Superintendent of Documents, Attn: New Orders, P.O. Box 
371954, Pittsburgh, PA 15250-7954. For GPO Customer Service call 202-
512-1803.

ELECTRONIC SERVICES

    The full text of the Code of Federal Regulations, the LSA (List of 
CFR Sections Affected), The United States Government Manual, the Federal 
Register, Public Laws, Public Papers, Weekly Compilation of Presidential 
Documents and the Privacy Act Compilation are available in electronic 
format at www.gpoaccess.gov/nara (``GPO Access''). For more information, 
contact Electronic Information Dissemination Services, U.S. Government 
Printing Office. Phone 202-512-1530, or 888-293-6498 (toll-free). E-
mail, [email protected].

[[Page vii]]

    The Office of the Federal Register also offers a free service on the 
National Archives and Records Administration's (NARA) World Wide Web 
site for public law numbers, Federal Register finding aids, and related 
information. Connect to NARA's web site at www.archives.gov/federal--
register. The NARA site also contains links to GPO Access.

                              Raymond A. Mosley,
                                    Director,
                          Office of the Federal Register.

January 1, 2004.

[[Page ix]]



                               THIS TITLE

    Title 7--Agriculture is composed of fifteen volumes. The parts in 
these volumes are arranged in the following order: parts 1-26, 27-52, 
53-209, 210-299, 300-399, 400-699, 700-899, 900-999, 1000-1199, 1200-
1599, 1600-1899, 1900-1939, 1940-1949, 1950-1999, and part 2000 to end. 
The contents of these volumes represent all current regulations codified 
under this title of the CFR as of January 1, 2003.

    The Food and Nutrition Service current regulations in the volume 
containing parts 210-299, include the Child Nutrition Programs and the 
Food Stamp Program. The regulations of the Federal Crop Insurance 
Corporation are found in the volume containing parts 400-699.

    All marketing agreements and orders for fruits, vegetables and nuts 
appear in the one volume containing parts 900-999. All marketing 
agreements and orders for milk appear in the volume containing parts 
1000-1199. Part 900--General Regulations is carried as a note in the 
volume containing parts 1000-1199, as a convenience to the user.

[[Page x]]




[[Page 1]]



                          TITLE 7--AGRICULTURE




                 (This book contains parts 1900 to 1939)

  --------------------------------------------------------------------

  SUBTITLE B--Regulations of the Department of Agriculture (Continued)

                                                                    Part

chapter xviii--Rural Housing Service, Rural Business-
  Cooperative Service, Rural Utilities Service, and Farm 
  Service Agency, Department of Agriculture (Continued).....        1900

[[Page 3]]

  Subtitle B--Regulations of the Department of Agriculture (Continued)

[[Page 5]]



    CHAPTER XVIII--RURAL HOUSING SERVICE, RURAL BUSINESS-COOPERATIVE 
SERVICE, RURAL UTILITIES SERVICE, AND FARM SERVICE AGENCY, DEPARTMENT OF 
                         AGRICULTURE (CONTINUED)




  --------------------------------------------------------------------


  Editorial Note: Nomenclature changes to chapter XVIII appear at 59 FR 
66443, Dec. 27, 1994, 61 FR 1109, Jan. 16, 1996, and 61 FR 2899, Jan. 
30, 1996.

                    SUBCHAPTER H--PROGRAM REGULATIONS
Part                                                                Page
1900            General.....................................           7
1901            Program-related instructions................          19
1902            Supervised bank accounts....................          58
1904

Loan and grant programs (individual) [Reserved]

1910            General.....................................          69
1922            [Reserved]
1924            Construction and repair.....................          82
1925            Taxes.......................................         183
1927            Title clearance and loan closing............         184
1930            General.....................................         194
1931-1939       [Reserved]

[[Page 7]]



                    SUBCHAPTER H_PROGRAM REGULATIONS





PART 1900_GENERAL--Table of Contents




                   Subpart A_Delegations of Authority

Sec.
1900.1 General.
1900.2 National office staff and state directors.
1900.3 State, district, and county office employees.
1900.4 Ratification.
1900.5 Assignment of cases.
1900.6 Chair, Loan Resolution Task Force.
1900.7 Effect on other regulations.

         Subpart B_Adverse Decisions and Administrative Appeals

1900.51 Definitions.
1900.52 General.
1900.53 Applicability.
1900.54 Effect on assistance pending appeal.
1900.55 Adverse action procedures.
1900.56 Non-appealable decisions.
1900.57 [Reserved]

Exhibit A to Subpart B [Reserved]
Exhibit B-1 to Subpart B--Letter for Notifying Applicants, Lender, 
          Holders and Borrowers of Adverse Decisions Where the Decision 
          Is Appealable
Exhibit B-2 to Subpart B--Letter for Notifying Applicants, Lenders and 
          Holders and Borrowers of Unfavorable Decision Reached at the 
          Meeting
Exhibit B-3 to Subpart B--Letter for Notifying Applicants, Lender, 
          Holders and Borrowers of Adverse Decisions Where the Decision 
          Involves an Appraisal (Not To Be Used in Cases Involving 
          Farmer Program Primary Loan Servicing Actions)
Exhibit B-4 to Subpart B--Letter for Notifying Applicants, Lenders and 
          Holders and Borrowers of Unfavorable Decision Reached After 
          State Director Review of an Appraisal (Not To Be Used in Cases 
          Involving Farmer Program Primary Loan Servicing Actions)
Exhibit C to Subpart B--Letter for Notifying Applicants, Lenders, 
          Holders, and Borrowers of Adverse Decisions When Part or All 
          of the Decision Is Not Appealable [Not Used in Connection With 
          Decisions Related to Nonprogram Applicants, Borrowers, or 
          Property]
Exhibit D to Subpart B--Hearings/Review Officer Designations

                 Subpart C_Applicability of Federal Law

1900.101 General
1900.102 Applicable law.

 Subpart D_Processing and Servicing FmHA or Its Successor Agency Under 
  Public Law 103	354 Assistance to Employees, Relatives, and Associates

1900.151 General.
1900.152 Definitions.
1900.153 Identifying and reporting an employee relationship.
1900.154 Determining the need for special handling.
1900.155 Designating the processing/servicing official.
1900.156 Special handling-processing.
1900.157-1900.200 [Reserved]

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 7 U.S.C. 6991, et. seq.; 42 
U.S.C. 1480; Reorganization Plan No. 2 of 1953 (5 U.S.C. App.).



                   Subpart A_Delegations of Authority



Sec.  1900.1  General.

    The authorities contained in this subpart apply to all assets, 
functions, and programs now or hereafter administered or serviced by the 
Farmers Home Administration or its successor agency under Public Law 
103-354, including but not limited to those relating to indebtedness, 
security, and other assets obtained or contracted through the Secretary 
of Agriculture, Resettlement Administration, Farm Security 
Administration, or Emergency Crop and Feed Loan Offices of the Farm 
Credit Administration, the Soil Conservation Service in connection with 
water conservation and utilization projects; the Puerto Rico Hurricane 
Relief Commission and successor agencies in connection with Puerto Rico 
Hurricane relief loans to individuals; State Rural Rehabilitation 
Corporations, the United States of America or its officials as trustees 
of the assets of State Rural Rehabilitation Corporations, Regional 
Agricultural Credit Corporations, Defense Relocation Corporations, land 
leasing and purchasing associations, corporations, and agencies, and 
whether the interest of the

[[Page 8]]

United States in the indebtedness, instrument of debt, security, 
security instrument, or other assets is that of obligee, owner, holder, 
insurer, assignee, mortgagee, beneficiary, trustee or other interest.

[44 FR 18162, Mar. 27, 1979]



Sec.  1900.2  National office staff and state directors.

    The following officials of the Farmers Home Administration or its 
successor agency under Public Law 103-354, in accordance with applicable 
laws, and the regulations implementing these laws, are severally 
authorized, for and on behalf of and in the name of the United States of 
America or the Farmers Home Administration or its successor agency under 
Public Law 103-354, to do and perform all acts necessary in connection 
with making and insuring loans, making grants and advances, servicing 
loans and other indebtedness and obtaining, servicing and enforcing 
security and other instruments related thereto: The Deputy Administrator 
Program Operations, the Assistant Administrators for Farmer Programs, 
Housing, and Community and Business Programs, the Assistant 
Administrator Accounting and Director Finance Office; each Director and 
the Insured Loan Officer, Finance Office; the Directors for the Water 
and Waste Disposal Division, the Community Facilities Division, the 
Business and Industry Division, the Multi-Family Housing Processing 
Division, the Multi-Family Housing Servicing and Property Management 
Division, the Single Family Housing Processing Division, the Single 
Family Housing Servicing and Property Management Division, the Farm Real 
Estate and Production Division, the Emergency Division; and each State 
Director within the area of that State Director's jurisdiction; and in 
the absence or disability of any such official, the person acting in 
that official's position; and the delegates of any such official. The 
authority includes, but is not limited to, the authority to:
    (a) Effect the assignment of, or the declaration of trust with 
respect to, insured security instruments to place them in trust with the 
United States of America as trustee for the benefit of any holder of the 
promissory note or bond secured by such security instrument.
    (b) Acknowledge receipt of notice of sale or assignment of insured 
loans and security instruments.
    (c) Appoint or request the appointment of substitute trustees in 
deeds of trust.
    (d) Execute proofs of claim in bankruptcy, death, and other cases.
    (e) Consent to sale or assignment of, or sell or assign, direct or 
insured loans and security instruments (except that in the case of 
Agency asset sales, District Directors and County Supervisors are 
delegated the authority to assign security instruments), endorsements, 
reinsurance agreements, or other instruments in connection therewith; 
and execute agreements to insure and reinsure, and to purchase and 
repurchase insured loans and security instruments.
    (f) Compromise, adjust, cancel or charge off indebtedness (except 
that County Supervisors are delegated authority to approve all 
settlements of sections 502 and 504 single family housing debt(s)).
    (g) Modify contracts and other instruments and compromise claims 
owed to the Farmers Home Administration or its successor agency under 
Public Law 103-354 and covered by the Federal Claims Collection Act of 
1966 and the joint regulations issued under it by the Attorney General 
and the Comptroller General as provided for in applicable program 
regulations.
    (h) Perform all actions pertaining to the sale (or other disposal) 
of real or chattel property or interests therein and to execute and 
deliver bills of sale or other instruments to effect such sale (or 
disposition), which includes but is not limited to offering property for 
sale; advertising; receiving and accepting offers or bids; and closing 
sale transactions, including the collection of sale proceeds, and 
delivery of quitclaim deeds, easements, and right-of-way conveyances 
after those documents have been executed. The authority to execute any 
deeds of conveyance of inventory real property, including quitclaim 
deeds, easements, rights-of-

[[Page 9]]

way, or sale of any use rights is reserved to the State Director, and 
this authority may not be redelegated.
    (i) Approve and consent to transfers of security property to other 
parties with or without assumption of debts; and approve and accept 
transfers of security property or interests therein to the United States 
of America, and execute release from liability after determination is 
made in accordance with applicable program regulations.
    (j) Execute and deliver, or approve in writing, suspensions, 
releases or terminations of assignments, of income, renewals, 
extensions, partial and full releases and satisfactions of security, and 
personal or indemnity liability for indebtedness, waivers, subordination 
agreements, severance agreements, affidavits, acknowlegements, 
certificates of residence, evidence of consent, and other instruments or 
documents.
    (k) Accelerate and declare entire real estate or chattel 
indebtedness due and payable, foreclose or request foreclosure of real 
estate security instruments by exercise of power of sale or otherwise, 
and bid for and purchase at any foreclosure or other sale or otherwise 
acquire real property pledged, mortgaged, conveyed, attached, or levied 
upon to collect indetedness, and accept title to any property so 
purchased or acquired.
    (l) Require and accept further or additional security.
    (m) Accelerate and declare entire non-real estate indebtedness due 
and payable, and foreclose or request foreclosure of chattel security 
instruments by exercise of power of sale or otherwise.
    (n) Bid for and purchase at any foreclosure or other sale, or 
otherwise acquire personal property pledged, mortgaged, conveyed, 
attached, or levied upon to collect indebtedness, and accept title to 
any property so purchased or acquired.
    (o) Take possession of, maintain, and operate security or acquired 
real or personal property or interests therein, sell or otherwise 
dispose of such personal property, and execute and deliver contracts, 
caretaker's agreements, leases, and other instruments in connection 
therewith, as appropriate.
    (p) Execute proofs of loss on insurance contracts and endorse 
without recourse loss payment drafts and checks.
    (q) Issue, publish and serve notices and other instruments.
    (r) File or record instruments, whether separate instruments, or by 
making marginal entries, or by use of other methods permissible under 
State law.

[44 FR 18162, Mar. 27, 1979, as amended at 47 FR 5700, Feb. 8, 1982; 50 
FR 23901, June 7, 1985; 52 FR 44375, Nov. 19, 1987; 56 FR 6946, Feb. 21, 
1991]



Sec.  1900.3  State, district, and county office employees.

    The following officials and employees of the Farmers Home 
Administration or its successor agency under Public Law 103-354, in 
accordance with applicable laws, and the regulations implementing these 
laws, for and on behalf of, and in the name of the United States of 
America or the Farmers Home Administration or its successor agency under 
Public Law 103-354, are also severally authorized within the area of 
their respective jurisdictions to perform the acts specified in 
paragraphs (g) through (r) of Sec.  1900.2; and within their loan 
approval authority to sell or otherwise dispose of real or chattel 
property or interests therein and to execute and deliver bills of sale 
or other instruments to effect such sale or disposition: Chief, Farmer 
Programs/Specialist; Chief, Rural Housing/Specialist; Chief, Community 
Programs/Specialist; Chief, Business and Industry/Specialist; Chief, 
Community and Business Programs/Specialist; Chief, Appraisal Staff/
Appraiser; Chief, Underwriting Staff/Underwriter; Chief, Underwriting 
and Appraisal Staff; Chief, Servicing and Inventory Staff/Credit 
Management Specialist/Realty Specialist; each District Director, 
Assistant District Director, Loan Specialist General, County (including 
Parish) Supervisor, Emergency Loan Supervisor, Assistant Emergency Loan 
Supervisor, or other supervisor or assistant supervisor, and in the 
absence or disability of any such official or employee, the person 
acting in the position.

[50 FR 23902, June 7, 1985, as amended at 55 FR 43325, Oct. 29, 1990]

[[Page 10]]



Sec.  1900.4  Ratification.

    All written instruments affecting title to real or personal 
property, including but not limited to deeds, releases, satisfactions, 
subordination agreements, severance agreements, consents, waivers, 
assignments, declarations of trust, and heretofore executed by officials 
or employees of the agencies or other entities referred to in Sec.  
1900.1 to carry out any purpose authorized by law, incident to the 
administration of programs under the jurisdiction of said agencies or 
other entities, are hereby approved, confirmed, and ratified.

[44 FR 18162, Mar. 27, 1979]



Sec.  1900.5  Assignment of cases.

    The State Director may, in writing, assign responsibilities and 
functions to a different office or staff position within the FmHA or its 
successor agency under Public Law 103-354 State organizational structure 
other than that referred to in regulations, provided no benefits, 
rights, or opportunities of the public are changed.

[55 FR 43325, Oct. 29, 1990]



Sec.  1900.6  Chair, Loan Resolution Task Force.

    The Chair, Loan Resolution Task Force is delegated the following 
authorities, to be exercised until September 30, 1996:
    (a) The responsibility for, under applicable Farmers Home 
Administration or its successor agency under Public Law 103-354 
regulations, collecting and settling all delinquent direct Farmer 
Program loans as defined in the Consolidated Farm and Rural Development 
Act, as amended, that have received all primary servicing rights and 
pre-acceleration homestead and preservation loan servicing rights under 
7 CFR part 1951, subpart S;
    (b) The responsibility for making and directing the making of loan 
servicing decisions, under applicable Farmers Home Administration or its 
successor agency under Public Law 103-354 regulations, concerning 
delinquent direct Farmer Programs loans for which accrued principal and 
interest equals or exceeds one million dollars, to extend to borrowers 
their remaining primary servicing rights and pre-acceleration homestead 
and preservation loan servicing rights under 7 CFR part 1951, subpart S;
    (c) Authority for approving the grant of exceptions pursuant to 
Sec. Sec.  1951.916, 1955.21, 1956.99 and 1965.35 of this chapter, to 
the extent necessary to carry out the responsibilities described in 
paragraphs (a) and (b) of this section.

[59 FR 43441, Aug. 24, 1994]



Sec.  1900.7  Effect on other regulations.

    This subpart does not revoke or modify any other delegation or 
redelegation, instruction, procedure, or regulation issued by, or under 
authority of, the Administrator of the Farmers Home Administration or 
its successor agency under Public Law 103-354.

[44 FR 18162, Mar. 27, 1979. Redesignated at 55 FR 43325, Oct. 29, 1990. 
Further redesignated at 59 FR 43441, Aug. 24, 1994]



         Subpart B_Adverse Decisions and Administrative Appeals

    Source: 60 FR 67318, Dec. 29, 1995, unless otherwise noted.



Sec.  1900.51  Definitions.

    Act means the Federal Crop Insurance Reform and Department of 
Agriculture Reorganization Act of 1994, Public Law No. 103-354 (7 U.S.C. 
6991 et seq.).
    Agency means the Rural Utilities Service (RUS), the Rural Housing 
Service (RHS), and the Rural Business-Cooperative Development Service 
(RBS), or their successor agencies.
    Refer to 7 CFR 11.1 for other definitions applicable to appeals of 
adverse decisions covered by this subpart.



Sec.  1900.52  General.

    This subpart specifies procedures for use by USDA personnel and 
program participants to ensure that full and complete consideration is 
given to program participants who are affected by an agency adverse 
decision.



Sec.  1900.53  Applicability.

    (a) Appeals of adverse decisions covered by this subpart will be 
governed by 7 CFR part 11.

[[Page 11]]

    (b) The provisions of this subpart apply to adverse decisions 
concerning direct loans, loan guarantees, and grants under the following 
programs: RUS Water and Waste Disposal Facility Loans and Grants 
Program; RHS Housing and Community Facilities Loan Programs; RBS Loan, 
Grant, and Guarantee Programs and the Intermediary Relending Program; 
and determinations of the Rural Housing Trust 1987-1 Master Servicer.
    (c) This subpart does not apply to decisions made by parties outside 
an agency even when those decisions are used as a basis for decisions 
falling within paragraph (b) of this section, for example: decisions by 
state governmental construction standards-setting agencies (which may 
determine whether RHS will finance certain houses); Davis-Bacon wage 
rates; flood plain determinations; archaeological and historical areas 
preservation requirements; and designations of areas inhabited by 
endangered species.



Sec.  1900.54  Effect on assistance pending appeal.

    (a) Assistance will not be discontinued pending the outcome of an 
appeal of a complete or partial adverse decision.
    (b) Notwithstanding the provisions of paragraph (a) of this section, 
administrative offsets initiated under subpart C of part 1951 will not 
be stayed pending the outcome of an appeal and any further review of the 
decision to initiate the offset.



Sec.  1900.55  Adverse action procedures.

    (a) If an applicant, guaranteed lender, a holder, borrower or 
grantee is adversely affected by a decision covered by this subpart, the 
decision maker will inform the participant of the adverse decision and 
whether the adverse decision is appealable. A participant has the right 
to request the Director of NAD to review the agency's finding of 
nonappealability in accordance with 7 CFR 11.6(a). In cases where the 
adverse decision is based on both appealable and nonappealable actions, 
the adverse action is not appealable.
    (b) A participant affected by an adverse decision of an agency is 
entitled under section 275 of the Act to an opportunity for a separate 
informal meeting with the agency before commencing an appeal to NAD 
under 7 CFR part 11.
    (c) Participants also have the right under section 275 of the Act to 
seek mediation involving any adverse decision appealable under this 
subpart if the mediation program of the State in which the participant's 
farming operation giving rise to the decision is located has been 
certified by the Secretary for the program involved in the decision. An 
agency shall cooperate in such mediation. Any time limitation for appeal 
will be stayed pending completion of the mediation process (7 CFR 
11.5(c)).



Sec.  1900.56  Non-appealable decisions.

    The following are examples of decisions which are not appealable:
    (a) Decisions which do not fall within the scope of this subpart as 
set out in Sec.  1900.53.
    (b) Decisions that do not meet the definition of an ``adverse 
decision'' under 7 CFR part 11.
    (c) Decisions involving parties who do not meet the definition of 
``participant'' under 7 CFR part 11.
    (d) Decisions with subject matters not covered by 7 CFR part 11.
    (e) Interest rates as set forth in agency procedures, except for 
appeals alleging application of an incorrect interest rate.
    (f) The State RECD Director's refusal to request an administrative 
waiver provided for in agency program regulations.
    (g) Denials of assistance due to lack of funds or authority to 
guarantee.

[[Page 12]]



Sec.  1900.57  [Reserved]

              Exhibit A to Subpart B of Part 1900[Reserved]

Exhibit B-1 to Subpart B of Part 1900--Letter for Notifying Applicants, 
Lender, Holders and Borrowers of Adverse Decisions Where the Decision Is 
                               Appealable

                 UNITED STATES DEPARTMENT OF AGRICULTURE

  Farmers Home Administration or its successor agency under Public Law 
                                 103-354

                            (Insert Address)

________________________________________________________________________
Date
    Dear ------------:
    After careful consideration, we [were unable to take favorable 
action on your application/request for Farmers Home Administration or 
its successor agency under Public Law 103-354 services] [are cancelling/
reducing the assistance you are presently receiving]. The specific 
reasons for our decision are:

(Insert here the adverse decision and all of the specific reasons for 
the adverse action.)

    If you have any questions concerning the decision or the facts used 
in making our decision and desire further explanation, you may call or 
write the County Office (insert phone number) to request a meeting with 
(this office) (The County Committee) within 15 calendar days of the date 
of this letter. You should present any new information or evidence along 
with possible alternatives for our consideration. You may also bring a 
representative [or legal counsel] with you. You also have the right to 
appeal this decision to a hearing officer in lieu of, or in addition to, 
a meeting with [this office] [the County Committee]. See attachment for 
your appeal rights. (Attach Form FmHA or its successor agency under 
Public Law 103-354 1900-1.) (For guaranteed loans, except loss claims, 
the applicant and lender must jointly request a meeting and/or an 
appeal.)
    If you do not wish a meeting, as outlined above, a request for a 
hearing must be sent to the Area Supervisor, National Appeals Staff 
(address) ------------, postmarked no later than (month) ----------, 
(date) ----------.

(insert date 30 days from date of letter.)

    The Federal Equal Credit Opportunity Act prohibits creditors from 
discriminating against credit applicants on the basis of race, color, 
religion, national origin, sex, marital status, handicap, or age 
(provided that the applicant has the capacity to enter into a binding 
contract), because all or part of the applicant's income derives from 
any public assistance program, or because the applicant has in good 
faith exercised any right under the Consumer Credit Protection Act. The 
Federal Agency that administers compliance with the law concerning this 
creditor is the Federal Trade Commission, Equal Credit Opportunity, 
Washington, DC 20580.
 Sincerely,
________________________________________________________________________
(Decision Maker)
(County Supervisor may sign for County Committee)
________________________________________________________________________
(Title)

[55 FR 9874, Mar. 16, 1990]

Exhibit B-2 to Subpart B of Part 1900--Letter for Notifying Applicants, 
Lenders and Holders and Borrowers of Unfavorable Decision Reached at the 
                                 Meeting

                 UNITED STATES DEPARTMENT OF AGRICULTURE

  Farmers Home Administration or its successor agency under Public Law 
                                 103-354

                            (Insert Address)

________________________________________________________________________
Date
    Dear ------------:
    We appreciated the opportunity to review the facts relative to [your 
application/request for FmHA or its successor agency under Public Law 
103-354 services] [the assistance you are presently receiving]. We 
regret that our meeting with you did not result in a satisfactory 
conclusion.

(Insert here the adverse decision and all the specific reasons for the 
adverse action).

    See attachment for your appeal rights. (Attach Form FmHA or its 
successor agency under Public Law 103-354 1900-1) (For guaranteed loans, 
except loss claims, the applicant and lender must jointly request an 
appeal.)
    A request for a hearing must be sent to the Area Supervisor, 
National Appeals Staff ------------, postmarked no later than (month) --
----------, (date) ------------

(insert date 30 days from date of letter.)

    The Federal Equal Credit Opportunity Act prohibits creditors from 
discriminating against credit applicants on the basis of race, color, 
religion, national origin, sex, marital status, handicap, or age 
(provided that the applicant has the capacity to enter into a binding 
contract), because all or part of the applicant's income derives from 
any public assistance program, or because the applicant has in good 
faith exercised any right

[[Page 13]]

under the Consumer Credit Protection Act. The Federal Agency that 
administers compliance with the law concerning this creditor is the 
Federal Trade Commission, Equal Credit Opportunity, Washington, DC 
20580.
 Sincerely,
________________________________________________________________________
(Decision Maker)
(County Supervisor may sign for County Committee)
________________________________________________________________________
(Title)

[55 FR 9874, Mar. 16, 1990]

Exhibit B-3 to Subpart B of Part 1900--Letter for Notifying Applicants, 
 Lender, Holders and Borrowers of Adverse Decisions Where the Decision 
Involves an Appraisal (Not To Be Used in Cases Involving Farmer Program 
                     Primary Loan Servicing Actions)

                 UNITED STATES DEPARTMENT OF AGRICULTURE

  Farmers Home Administration or its successor agency under Public Law 
                                 103-354

                            (Insert Address)

________________________________________________________________________
Date
    Dear------------:
    After careful consideration, we [were unable to take favorable 
action on your application/request for Farmers Home Administration or 
its successor agency under Public Law 103-354 services] [are cancelling/
reducing the assistance you are presently receiving]. The specific 
reasons for our decision are:

(Insert here the adverse decision and all of the specific reasons for 
the adverse action.)

    If you have any questions concerning the decision or the facts used 
in making our decision and desire further explanation, you may call or 
write the County Office (insert phone number) to request a meeting with 
(this office) (The County Committee) within 15 calendar days of the date 
of this letter. You should present any new information or evidence along 
with possible alternatives for our consideration. You may also bring a 
representative or legal counsel with you.
    If you do not wish to have a meeting as outlined above, you may 
contest the appraisal of the property value. In order to contest the 
appraisal you must first request review of the appraisal by the FmHA or 
its successor agency under Public Law 103-354 State Director. Your 
request for review by the State Director should be made through our 
office. You will be advised of the results of the State Director's 
review. If after the State Director's review you still disagree with the 
appraisal you may request a hearing. When you receive the results of the 
State Director's review you will be advised on how to ask for a hearing. 
Your request for review of the appraisal must be postmarked no later 
than (month)----------, (date) -------- (insert date 15 days from date 
of letter).
    The Federal Equal Credit Opportunity Act prohibits creditors from 
discriminating against credit applicants on the basis of race, color, 
religion, national origin, sex, marital status, handicap, or age 
(provided that the applicant has the capacity to enter

[55 FR 9874, Mar. 16, 1990]

Exhibit B-4 to Subpart B of Part 1900--Letter for Notifying Applicants, 
Lenders and Holders and Borrowers of Unfavorable Decision Reached After 
State Director Review of an Appraisal (Not To Be Used in Cases Involving 
             Farmer Program Primary Loan Servicing Actions)

                 UNITED STATES DEPARTMENT OF AGRICULTURE

  Farmers Home Administration or its successor agency under Public Law 
                                 103-354

                            (Insert Address)

________________________________________________________________________
Date
    Dear ------------:
    At your request we have reviewed the appraisal of the property you 
wish to purchase. We have determined that the value estimate of the 
property is both supportable and defensible (as required by FmHA or its 
successor agency under Public Law 103-354 regulations and appraisal 
industry standards) and therefore acceptable.
    You have the right to appeal this decision. You must show why the 
appraisal is in error. You may submit an independent appraisal, at your 
expense, from a qualified appraiser who is a designated member of [the 
American Institute of Real Estate Appraisers, Society of Real Estate 
Appraisers, American Society of Farm Managers and Rural Appraisers, 
etc.,] or an equivalent organization requiring appraisal education, 
testing and experience. The appraisal must conform to Agency Appraisal 
regulations applicable to the loan program.
    See attachment for your appeal rights.
    A request for a hearing must be sent to the Area Supervisor, 
National Appeals Staff (address) ------------, postmarked no later than 
(month) ------------, (date) ------------,

(insert date 30 days from date of letter)

    The Federal Equal Credit Opportunity Act prohibits creditors from 
discriminating

[[Page 14]]

against credit applicants on the basis of race, color, religion, 
national origin, sex, marital status, handicap, or age (provided that 
the applicant has the capacity to enter into a binding contract), 
because all or part of the applicant's income derives from any public 
assistance program, or because the applicant has in good faith exercised 
any right under the Consumer Credit Protection Act. The Federal Agency 
that administers compliance with the law concerning this creditor is the 
Federal Trade Commission, Equal Credit Opportunity, Washington, DC 
20580.
 Sincerely,
________________________________________________________________________
(State Director)

[55 FR 9875, Mar 16, 1990]

 Exhibit C to Subpart B of Part 1900--Letter for Notifying Applicants, 
Lenders, Holders, and Borrowers of Adverse Decisions When Part or All of 
 the Decision Is Not Appealable [Not Used in Connection With Decisions 
        Related to Nonprogram Applicants, Borrowers, or Property]

                 UNITED STATES DEPARTMENT OF AGRICULTURE

  Farmers Home Administration or its successor agency under Public Law 
                                 103-354

                            (Insert Address)

________________________________________________________________________
(Date)
    Dear ------------:
    After careful consideration we [were unable to take favorable action 
on your application/request for Farmers Home Administration or its 
successor agency under Public Law 103-354 services] [are cancelling/
reducing the assistance you are presently receiving].

(Insert and number all of the specific reasons for the adverse action. 
Examples of nonappealable reasons are listed in Sec.  1900.55(a)).

    If you have any questions about this action, we would like the 
opportunity to explain in detail why your request has not been approved, 
explain any possible alternative, or provide any other information you 
would like. You may bring any additional information you may have and 
you may bring a representative or counsel if you wish. Please call 
(telephone number) for an appointment.
    Applicants and borrowers generally have a right to appeal adverse 
decisions, but FmHA or its successor agency under Public Law 103-354 
decisions based on certain reasons are not appealable. We have 
determined that the reason(s) numbered -------- for the decision in this 
case make(s) the decision not appealable under FmHA or its successor 
agency under Public Law 103-354 regulations. You may, however, write the 
Area Supervisor, National Appeals Staff (insert address) for a review of 
the accuracy of our finding that the decision is not appealable, 
postmarked no later than (month) --------, (date) -------- (insert date 
30 days from date of letter).
    The Federal Equal Credit Opportunity Act prohibits creditors from 
discriminating against credit applicants on the basis of race, color, 
religion, national origin, sex, marital status, handicap, or age 
(provided that the applicant has the capacity to enter into a binding 
contract), because all or part of the applicant's income derives from 
any public assistance program, or because the applicant has in good 
faith exercised any right under the Consumer Credit Protection Act. The 
Federal Agency that administers compliance with the law concerning this 
creditor is the Federal Trade Commission, Equal Credit Opportunity, 
Washington, DC 20580.
 Sincerely,
________________________________________________________________________
(Decision Maker)
(County Supervisor may sign for County Committee)
________________________________________________________________________
(Title)

[55 FR 9875, Mar. 16, 1990, as amended at 58 FR 52646, Oct. 12, 1993]

    Editorial Note: At 58 FR 52646, Oct. 12, 1993, the Farmers Home 
Administration attempted to amend exhibit C of subpart B of part 1900 by 
removing in the second paragraph the words ``(month) --------,''; 
however, because ``(month) --------'' does not exist in the second 
paragraph, this amendment could not be incorporated.

      Exhibit D to Subpart B of Part 1900--Hearings/Review Officer 
                              Designations

                   Hearing/Review Officer Designations
------------------------------------------------------------------------
    Decisionmaker or decision       Hearing officer     Review officer
------------------------------------------------------------------------
County Supervisor...............  National Appeals    State Director and/
                                   Staff Hearing       or Director,
                                   Officer.            National Appeals
                                                       Staff.
County Committee................  National Appeals    State Director and/
                                   Staff Hearing       or Director,
                                   Officer.            National Appeals
                                                       Staff.

[[Page 15]]

 
*District Director, *State        National Appeals    **State Director
 Program Chief, *District          Staff Hearing       and/or Director,
 Specialist.                       Officer.            National Appeals
                                                       Staff.
*State Director, *Regional        As appointed by     Director, National
 Director.                         Director,           Appeals Staff.
                                   National Appeals
                                   Staff.
Division Director or Assistant    As appointed by     Director, National
 Administrator.                    Director,           Appeals Staff.
                                   National Appeals
                                   Staff.
Assistant Administrator.........  As appointed by     Director, National
                                   Director,           Appeals Staff.
                                   National Appeals
                                   Staff.
Deputy or Associate               As appointed by     Director, National
 Administrator.                    Director,           Appeals Staff.
                                   National Appeals
                                   Staff.
------------------------------------------------------------------------
*Decisionmaker for Rural Development Administration or its successor
  agency under Public Law 103-354 (RDA or its successor agency under
  Public Law 103-354) cases for Regional Office Operations.
**Review officer will be the Regional Director and/or the Director,
  National Appeals Staff for RDA or its successor agency under Public
  Law 103-354 cases.

                                  Notes

    1. District Director also means Assistant District Director or 
District Loan Specialist.
    2. County Supervisor also means Assistant County Supervisor with 
loan approval authority.
    3. The Director of the National Appeals Staff may designate a staff 
member to conduct a hearing or review. When the hearing/review is 
completed, the designee will send the complete case file, hearing notes, 
tape recordings, and a recommended decision to the Director for a final 
decision. The Director may, for individual cases, delegate final 
decision authority to a designee.
    4. For decisions not directly covered above, advice should be sought 
from the Director of the National Appeals Staff.
    5. An appellant may elect to have an appeal reviewed by the State 
Director, or the Director of the National Appeals Staff. The decision of 
the State Director will be subject to further review by the Director of 
the National Appeals Staff upon request of the appellant.

[58 FR 4065, Jan. 13, 1993]



                 Subpart C_Applicability of Federal Law



Sec.  1900.101  General.

    This subpart provides Agency policy concerning:
    (a) The applicability of Federal rather than State Law in the 
conduct of Farmers Home Administration (FmHA) or its successor agency 
under Public Law 103-354 operations, and
    (b) The liability of an auctioneer for conversion of personal 
property mortgaged to FmHA or its successor agency under Public Law 103-
354.

[44 FR 10979, Feb. 26, 1979, as amended at 45 FR 8934, Feb. 11, 1980]



Sec.  1900.102  Applicable law.

    Loans made by FmHA or its successor agency under Public Law 103-354 
are authorized and executed pursuant to Federal programs adopted by 
Congress to achieve national purposes of the U.S. Government.
    (a) Instruments evidencing or securing a loan payable to or held by 
the Farmers Home Administration or its successor agency under Public Law 
103-354, such as promissory notes, bonds, guaranty agreements, 
mortgages, deeds of trust, financing statements, security agreements, 
and other evidences of debt or security shall be construed and enforced 
in accordance with applicable Federal law.
    (b) Instruments evidencing a guarantee, conditional commitment to 
guarantee, or a grant, such as contracts of guarantee, grant agreements 
or other evidences of an obligation to guarantee or make a grant, 
executed by the Farmers Home Administration or its successor agency 
under Public Law 103-354, shall be construed and enforced in accordance 
with applicable Federal law.
    (c) In order to implement and facilitate these Federal loan 
programs, the application of local procedures, especially for 
recordation and notification purposes, may be utilized to the fullest 
extent feasible and practicable. However, the use of local procedures 
shall not be deemed or construed to be any

[[Page 16]]

waiver by FmHA or its successor agency under Public Law 103-354 of 
Federal immunity from any local control, penalty, or liability, or to 
subject FmHA or its successor agency under Public Law 103-354 to any 
State required acts or actions subsequent to the delivery by FmHA or its 
successor agency under Public Law 103-354 officials of the instrument to 
the appropriate local or State official.
    (d) Any person, corporation, or organization that applies for and 
receives any benefit or assistance from FmHA or its successor agency 
under Public Law 103-354 that offers any assurance or security upon 
which FmHA or its successor agency under Public Law 103-354 relies for 
the granting of such benefit or assistance, shall not be entitled to 
claim or assert any local immunity, privilege, or exemption to defeat 
the obligation such party incurred in obtaining or assuring such Federal 
benefit or assistance.
    (e) The liability of an auctioneer for conversion of personal 
property mortgaged to FmHA or its successor agency under Public Law 103-
354 shall be determined and enforced in acceptance with the applicable 
Federal law. ``Auctioneer'' for the purposes of this subpart includes a 
commission merchant, market agency, factor or agent. In all cases in 
which there has been a disposition without authorization by FmHA or its 
successor agency under Public Law 103-354 of personal property mortgaged 
to that agency, any auctioneer involved in said disposition shall be 
liable to the Government for conversion--notwithstanding any State 
statute or decisional rule to the contrary.

[44 FR 10979, Feb. 26, 1979]



 Subpart D_Processing and Servicing FmHA or Its Successor Agency Under 
  Public Law 103	354 Assistance to Employees, Relatives, and Associates

    Source: 58 FR 224, Jan. 5, 1993, unless otherwise noted.



Sec.  1900.151  General.

    (a) Farmers Home Administration (FmHA) or its successor agency under 
Public Law 103-354 Instruction 2045-BB (available in any FmHA or its 
successor agency under Public Law 103-354 office) requires the 
maintenance of high standards of honesty, integrity, and impartiality by 
employees. To reduce the potential for employee conflict of interest, 
any processing, approval, servicing or review activity, including access 
through automated information systems, is conducted only by authorized 
FmHA or its successor agency under Public Law 103-354 employees who:
    (1) Are not themselves the recipient.
    (2) Are not members of the family or known close relatives of the 
recipient.
    (3) Do not have an immediate working relationship with the 
recipient, the employee related to the recipient, or the employee who 
would normally conduct the activity.
    (4) Do not have a business or close personal association with the 
recipient.
    (b) No provision of this subpart takes precedence over individual 
program requirements or restrictions, especially those restrictions 
found in FmHA or its successor agency under Public Law 103-354 
Instruction 2045-BB (available in any FmHA or its successor agency under 
Public Law 103-354 office) relating to eligibility for FmHA or its 
successor agency under Public Law 103-354 assistance of FmHA or its 
successor agency under Public Law 103-354 employees, members of families 
of employees, close relatives, or business or close personal associates 
of employees.
    (c) The determination of a case's need for special handling under 
the provisions of this subpart is not an adverse action and, therefore, 
is not subject to appeal.



Sec.  1900.152  Definitions.

    Applicant or borrower. All persons or organizations, individually or 
collectively, applying for or receiving insured or guaranteed loan or 
grant assistance from or through FmHA or its successor agency under 
Public Law 103-354. Referred to as recipient.
    Assistance. Loans or grants made, insured or guaranteed, or serviced 
by FmHA or its successor agency under Public Law 103-354.

[[Page 17]]

    Associates. All persons with whom an employee has a business or 
close personal association or immediate working relationship.
    Business association. Business relationship between those with an 
identity of financial interest; including but not limited to a business 
partnership, being an officer, director, trustee, partner or employee of 
an organization, or other long-term contractual relationship.
    Close personal association. Social relationship between unrelated 
residents of the same household.
    Close relatives. The spouse, relatives and step-relatives of an 
employee or the employee's spouse, including Grandmother, Grandfather, 
Mother, Father, Aunt, Uncle, Sister, Brother, Daughter, Son, Niece, 
Nephew, Granddaughter, Grandson, and First Cousin.
    Conflict of interest. A situation (or the appearance of one) in 
which one could reasonably conclude that an FmHA or its successor agency 
under Public Law 103-354 employee's private interest conflicts with his 
or her Government duties and responsibilities, even though there may not 
actually be a conflict.
    Employee. All FmHA or its successor agency under Public Law 103-354 
personnel, including gratuitous employees and those negotiating for or 
having arrangements for prospective employment, except as otherwise 
specifically stated. For the purposes of this instruction only, the term 
also refers to county or area committee members, elected or appointed, 
and to closing agents who, although they are not employees, have a 
special relationship to FmHA or its successor agency under Public Law 
103-354 and therefore should be subject to these provisions.
    Immediate working relationship. A relationship between a subordinate 
and a supervisor in a direct line, or between co-workers in the same 
office. For the purposes of this subpart, the relationships among a 
County Supervisor and members of the local County Committee are 
immediate working relationships.
    Members of family. Blood and in-law relatives (such as by marriage 
or adoption) who are residents of the employee's household.
    Recipient. One who has applied for or received FmHA or its successor 
agency under Public Law 103-354 financial assistance in the form of a 
loan or grant. See definition of applicant or borrower.



Sec.  1900.153  Identifying and reporting an employee relationship.

    (a) Responsiblity of applicant. When an application for assistance 
is filed, the processing official asks if there is any known 
relationship or association with an FmHA or its successor agency under 
Public Law 103-354 employee. The applicant is required to disclose the 
requested information under subpart A of part 1910 of this chapter and 
pertinent program regulations.
    (b) Responsibility of FmHA or its successor agency under Public Law 
103-354 employee. An FmHA or its successor agency under Public Law 103-
354 employee who knows he or she is related to or associated with an 
applicant or recipient, regardless of whether the relationship or 
association is known to others, is required to notify the FmHA or its 
successor agency under Public Law 103-354 official who is processing or 
servicing the assistance, in writing. FmHA or its successor agency under 
Public Law 103-354 Guide Letter 1900-D-1 (available in any FmHA or its 
successor agency under Public Law 103-354 office) may be used as the 
notice. If the appropriate official is not known, the State Director 
should be notified. Regardless of whether the relationship or 
association is defined in Sec.  1900.152 of this subpart, if the 
employee believes there may be a potential conflict of interest, the 
FmHA or its successor agency under Public Law 103-354 official who is 
processing or servicing the assistance may be notified and special 
handling requested. An employee's request that the case receive special 
handling is usually honored.
    (c) Responsibility of FmHA or its successor agency under Public Law 
103-354 official. When any relationship or association is identified, 
the FmHA or its successor agency under Public Law 103-354 official 
completes and submits FmHA or its successor agency under Public Law 103-
354 Guide Letter 1900-D-2 (available in any FmHA or its successor agency 
under Public Law 103-354

[[Page 18]]

office) to the State Director (or Administrator, under paragraph (e) of 
this section or Sec.  1900.155(a) of this subpart). When completed FmHA 
or its successor agency under Public Law 103-354 Guide Letter 1900-D-3 
(available in any FmHA or its successor agency under Public Law 103-354 
office) is returned by the State Director, the processing official;
    (1)-(2) [Reserved]
    (3) Notifies the recipient in writing of the change in 
responsibility and any other pertinent information,
    (4) [Reserved]
    (d) Relationship or association established after application for 
FmHA or its successor agency under Public Law 103-354 assistance. If a 
relationship or association is established after an application has been 
filed or assistance has been provided, both recipient and employee are 
required to notify the FmHA or its successor agency under Public Law 
103-354 official who is processing or servicing the assistance. FmHA or 
its successor agency under Public Law 103-354 Guide Letter 1900-D-1 
(available in any FmHA or its successor agency under Public Law 103-354 
office) may be used for the notice.
    (e) Relationship or association with a State Office, Finance Office 
or National Office employee. If an identified relationship or 
association is with an employee at a State Office (other than a State 
Director), Finance Office or National Office, the processing/servicing 
official completes and submits FmHA or its successor agency under Public 
Law 103-354 Guide Letter 1900-D-2 (available in any FmHA or its 
successor agency under Public Law 103-354 office) to the State Director 
in the normal manner. The State Director reviews the information, 
determines the need for special handling, designates the processing/
servicing official, completes and submits FmHA or its successor agency 
under Public Law 103-354 Guide Letter 1900-D-3 (available in any FmHA or 
its successor agency under Public Law 103-354 office) to the 
Administrator for written concurrence. When the Administrator's 
concurrence is received, the State Director returns completed FmHA or 
its successor agency under Public Law 103-354 Guide Letter 1900-D-3 to 
the original official who completes the action described in paragraph 
(c) of this section.
    (f) Relationship or association with a State Director. If an 
identified relationship or association is with a State Director, the 
processing/servicing official completes and submits FmHA or its 
successor agency under Public Law 103-354 Guide Letter 1900-D-2 
(available in any FmHA or its successor agency under Public Law 103-354 
office) to the Administrator. The Administrator reviews, determines the 
need for special handling, designates the processing/servicing official, 
completes and returns FmHA or its successor agency under Public Law 103-
354 Guide Letter 1900-D-3 (available in any FmHA or its successor agency 
under Public Law 103-354 office) to the original official who completes 
the action described in paragraph (c) of this section.
    (g) Change in relationship or association, status of FmHA or its 
successor agency under Public Law 103-354 assistance, or employee's duty 
station. If the relationship or association has changed, the application 
denied or the assistance otherwise terminated, or the FmHA or its 
successor agency under Public Law 103-354 employee's duty station 
changed, the designated processing/servicing official completes FmHA or 
its successor agency under Public Law 103-354 Guide Letter 1900-D-2 
(available in any FmHA or its successor agency under Public Law 103-354 
office) with the new information and submits it. The review process 
takes place as described in paragraphs (a) through (e) of this section 
to determine if processing/servicing activity may return to normal or 
requires another change. If the assistance is denied or otherwise 
terminated, the designated official notifies the original official.



Sec.  1900.154  Determining the need for special handling.

    The State Director (or Administrator, under Sec.  1900.153(e) or 
Sec.  1900.155(a) of this subpart):
    (a) [Reserved]
    (b) Determines whether the reported relationship or association is 
defined in Sec.  1900.152 of this subpart and would violate the 
provisions of Sec.  1900.151(a) of this subpart,
    (c)-(f) [Reserved]

[[Page 19]]



Sec.  1900.155  Designating the processing/servicing official.

    (a) Designating an official with equivalent authority. The State 
Director (or Administrator, under Sec.  1900.253(e) of this subpart or 
this paragraph) designates a nonrelated or nonassociated FmHA or its 
successor agency under Public Law 103-354 official authorized to conduct 
the activity under program regulations, established delegation of 
authority and approval authority under subpart A of part 1901 of this 
chapter, and whose duty station is most convenient to the recipient and 
to the security property. A type and/or amount of assistance processed 
or serviced by a County Supervisor or at a County Office should be 
assigned only to another County Supervisor or County Office. A type and/
or amount of assistance processed or serviced by a District Director or 
at a District Office should be assigned only to another District 
Director or District Office.
    (b) County Committee. For processing or servicing decisions to be 
made by a County Committee, if the recipient is a member, a different 
County Committee is designated. If the recipient is related to or 
associated with the member, notwithstanding the provisions of Sec.  
1900.151(a)(3) of this subpart, the State Director may permit the 
decision to be made by the local committee, if the related/associated 
member abstains.
    (c) [Reserved]



Sec.  1900.156  Special handling--processing.

    (a) [Reserved]
    (b) Eligibility determination. The designated processing official 
reviews the application and develops additional data as necessary. Upon 
determination of whether the assistance will be provided, the designated 
processing official notifies the applicant of the decision in writing 
under program regulations, subpart A of part 1910 of this chapter, and 
subpart B of part 1900. If the determination is favorable, unless 
otherwise designated, the complete application is returned to the 
original processing official for docket preparation. If the 
determination is unfavorable, the designated processing official as 
decisionmaker participates in the appeal process to its conclusion.
    (c)-(e) [Reserved]
    (f) Closing agent. Unless there is a clear or apparent conflict of 
interest, closing will be at a location and by a closing agent chosen by 
the recipient.
    (g) Supervised bank account. Unless there is a clear or apparent 
conflict of interest, any supervised bank account (or construction 
account) is established at a financial institution chosen by the 
recipient under supbart A of part 1902 of this chapter. Countersignature 
authority is delegated only to a nonrelated or nonassociated FmHA or its 
successor agency under Public Law 103-354 official.
    (h) Construction inspection. Construction inspections are delegated 
to a nonrelated or nonassociated employee authorized to conduct 
inspections, whose duty station is nearest the construction site. The 
designated processing/servicing official notifies the builder (or 
architect/engineer) in writing of how and from whom to request 
inspections.



Sec. Sec.  1900.157-1900.200  [Reserved]



PART 1901_PROGRAM-RELATED INSTRUCTIONS--Table of Contents




Subparts A-D [Reserved]

             Subpart E_Civil Rights Compliance Requirements

1901.201 Purpose.
1901.202 Nondiscrimination in FmHA or its successor agency under Public 
          Law 103-354 programs.
1901.203 Title VIII of the Civil Rights Act of 1968.
1901.204 Compliance reviews.
1901.205 Nondiscrimination in construction financed with FmHA or its 
          successor agency under Public Law 103-354 loan or grant.

Exhibit A to Subpart E--Civil Rights Compliance Reviews
Exhibit B to Subpart E--Summary Report of Civil Rights Compliance 
          Reviews
Exhibit C to Subpart E--FmHA or Its Successor Agency Under Public Law 
          103-354 Financed Contract
Exhibit D to Subpart E--Goals and Timetables for Minorities and Women
Exhibit E to Subpart E--List of Regional Offices, Office of Federal 
          Contract Compliance Programs (OFCCP), U.S. Department of Labor 
          (USDL)

[[Page 20]]

Subpart F_Procedures for the Protection of Historical and Archeological 
                               Properties

1901.251 Purpose.
1901.252 Policy.
1901.253 Definitions.
1901.254 Scope.
1901.255 Historical and archeological assessments.
1901.256-1901.258 [Reserved]
1901.259 Actions to be taken when archeological properties are 
          discovered during construction.
1901.260 Coordination with other agencies.
1901.261 [Reserved]
1901.262 State supplement.
Exhibit A to Subpart F--National Park Service, U.S. Department of the 
          Interior Regional Offices

Subparts G-J [Reserved]

    Subpart K_Certificates of Beneficial Ownership and Insured Notes

1901.501 Purpose.
1901.502 Policy.
1901.503 Definitions.
1901.504 Authorities and responsibilities.
1901.505 Certificates of beneficial ownership in FmHA or its successor 
          agency under Public Law 103-354 loans.
1901.506 Book-entry procedure for FmHA or its successor agency under 
          Public Law 103-354 securities--issuance and redemption of 
          certificate by Reserve bank.
1901.507 Certificates of beneficial ownership issued by the FmHA or its 
          successor agency under Public Law 103-354 Finance Office.
1901.508 Servicing of insured notes outstanding with investors.
1901.509 Loss, theft, destruction, mutilation, or defacement of insured 
          notes, insurance contracts, and certificates of beneficial 
          ownership.

Subparts L-M [Reserved]

                    Subpart N_Indian Outreach Program

1901.651 Purpose.
1901.652 Goals.
1901.653 Field action.
1901.654 FmHA or its successor agency under Public Law 103-354 
          publications.
1901.655 Reports.

    Authority: 5 U.S.C. 301, 7 U.S.C. 1989, 42 U.S.C. 1480.

Subparts A-D [Reserved]



             Subpart E_Civil Rights Compliance Requirements

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 40 U.S.C. 442; 42 U.S.C. 
1480, 2942.



Sec.  1901.201  Purpose.

    This subpart contains policies and procedures for implementing the 
regulations of the Department of Agriculture issued pursuant to Title VI 
of the Civil Rights Act of 1964, title VIII of the Civil Rights Act of 
1968, Executive Order 11246 and the Equal Credit Opportunity Act of 
1974, as they relate to the Farmers Home Administration (FmHA) or its 
successor agency under Public Law 103-354. Nothing herein shall be 
interpreted to prohibit preference to American Indians on Indian 
Reservations.

[41 FR 40112, Sept. 17, 1976]



Sec.  1901.202  Nondiscrimination in FmHA or its successor agency under 
Public Law 103-354 programs.

    (a) Nondiscrimination by recipients of FmHA or its successor agency 
under Public Law 103-354 assistance. (1) No recipient of FmHA or its 
successor agency under Public Law 103-354 financial assistance will 
directly or through contractual or other arrangements subject any person 
or cause any person to be subjected to discrimination on the ground of 
race, color, or national origin, with respect to any program or 
facility. This prohibition applies but is not restricted to unequal 
treatment in priority, quality, quantity, methods, or charges for 
service, use, occupancy or benefit, participation in the service or 
benefit available, or in the use, occupancy or benefit of any structure, 
facility, or improvement provided with FmHA or its successor agency 
under Public Law 103-354 financial assistance.
    (2) Specifically, and without limiting the general applicability of 
this subpart, such recipient will not on the grounds of race, color, or 
national origin:
    (i) Deny any person the use, occupancy, or enjoyment of the whole or 
any part of real or personal property or service, financial aid, or 
other benefit under any program or facility.

[[Page 21]]

    (ii) Provide any person with any service, use, occupancy, or other 
benefit different from that provided others by the program or facility.
    (iii) Subject any person to segregation or separate treatment in any 
matter related to his or her receipt of any service or other benefit.
    (iv) Restrict in any way any person's enjoyment of any right, 
privilege, or advantage enjoyed by others through the facility or 
activity.
    (v) Treat any person differently from others in determining whether 
he or she satisfies any requirements or conditions for any admission or 
membership in the recipient or in any other organization.
    (vi) Deny any person an opportunity or restrict opportunity to 
participate in a program or facility by:
    (A) Refusing or failing to provide notice or services provided 
others for the purpose of encouraging participation in the program or 
facility; or
    (B) Providing any person with such notice or services different from 
the notice or services provided others.
    (vii) Utilize criteria or methods of administration that have the 
effect of subjecting a person to discrimination with respect to any 
program or facility or defeating or substantially impairing the 
achievement of the objectives of a program or facility.
    (viii) Select sites or locate facilities with the purpose or effect 
of:
    (A) Excluding individuals from, denying them the benefits of, or 
subjecting them to discrimination under any programs to which the 
regulations in this subpart apply; or
    (B) Defeating or substantially impairing the achievement of the 
objectives of the regulations in this subpart.
    (ix) Continue any previous or existing discriminatory practices, but 
will take affirmative action to overcome the effects of such 
discrimination.
    (x) Deny any person the opportunity to participate as a member of a 
planning or advisory body which is an integral part of the program.
    (b) Nondiscrimination by FmHA or its successor agency under Public 
Law 103-354 employees. (1) No. FmHA or its successor agency under Public 
Law 103-354 employee will exclude from participation in, or deny the 
benefits of, any program or activity administered by FmHA or its 
successor agency under Public Law 103-354, or subject to discrimination 
any person in the United States on the ground of race, color, religion, 
sex, national origin, or marital status.
    (2) No FmHA or its successor agency under Public Law 103-354 
employee will:
    (i) Be limited in the discharge of his or her responsibilities to 
working with applicants solely on the basis of race, color, religion, 
sex, national origin, or marital status.
    (ii) Obstruct equal access to buildings, facilities, structures, or 
lands under the control of FmHA or its successor agency under Public Law 
103-354.
    (iii) Deny under any program or activity of FmHA or its successor 
agency under Public Law 103-354 equal opportunity for employment; for 
participation in meetings, demonstrations, training activities or 
programs; for receiving awards; for receipt of information disseminated 
by publication, news, radio, and other media; for obtaining contracts, 
grants, loans or other financial assistance, or for selection to assist 
in the administration of programs or activities of FmHA or its successor 
agency under Public Law 103-354.
    (3) No FmHA or its successor agency under Public Law 103-354 
employee will, while conducting official business, participate in or 
attend any segregated meetings or meetings held in a segregated facility 
from which persons are excluded because of race, color, religion, sex, 
national origin, or marital status.
    (c) Intimidating or retaliatory acts. No recipient or other person 
will intimidate, threaten, coerce, or discriminate against any person 
for the purpose of interfering with any right or privilege under this 
subpart, or because a person has made a complaint or has testified, 
assisted, or participated in any manner in an investigation, proceeding, 
or hearing related to a complaint. The identity of complainants will be 
kept confidential except to the extent necessary to carry out the 
purposes of this subpart.
    (d) Nondiscrimination Agreement. The County Supervisor will, at the 
time

[[Page 22]]

FmHA or its successor agency under Public Law 103-354 assistance is 
requested, give all applicants for loans and grants listed in Sec.  
1901.204(a) a copy of Form FmHA or its successor agency under Public Law 
103-354 400-4, ``Nondiscrimination Agreement,'' and inform the applicant 
that assistance will be conditioned upon executing this form and 
complying with the requirements of this subpart.
    (e) Covenants. Each instrument of conveyance for loans subject to 
title VI of the Civil Rights Act of 1964, as outlined in Sec.  1901.204, 
must contain the following covenant: ``The property described herein was 
obtained or improved through Federal financial assistance. This property 
is subject to the provisions of title VI of the Civil Rights Act of 1964 
and the regulations issued pursuant thereto for so long as the property 
continues to be used for the same or similar purpose for which financial 
assistance was extended or for so long as the purchaser owns it, 
whichever is longer.''
    (f) Posters. The nondiscrimination poster, ``And Justice For All,'' 
will be displayed at the facilities and/or office of any borrower or 
grantee if the facilities have been financed by an FmHA or its successor 
agency under Public Law 103-354 loan or grant and are subject to title 
VI of the Civil Rights Act of 1964. This poster also will be displayed 
in all FmHA or its successor agency under Public Law 103-354 State and 
County Offices.
    (g) Racial and ethnic data. Recipients should maintain, for review 
by FmHA or its successor agency under Public Law 103-354 and other 
appropriate agencies, racial and ethnic data showing the extent to which 
members of minority groups are beneficiaries of FmHA or its successor 
agency under Public Law 103-354-assisted programs. The data should 
identify recipients as White, Negro or Black, American Indian, Spanish 
Surname, Oriental and Other.
    (h) Discrimination complaints. (1) Any person or any specific class 
of persons, if they believe they have been subject to discrimination 
prohibited by this subpart, may file a written complaint with any FmHA 
or its successor agency under Public Law 103-354 office, or, if they 
prefer with the Secretary of Agriculture. Persons who complain of 
discrimination will be advised of their rights to file complaints. A 
complaint must be filed not later than 180 days after the date of the 
alleged discrimination, unless the time for filing is extended by the 
Secretary of Agriculture.
    (2) A complaint filed with the County Supervisor or the State 
Director will be referred promptly to the Administrator, Attention: 
Equal Opportunity Officer. Attached to the complaint should be a 
statement by the County Supervisor or State Director identifying the 
recipient and type of assistance provided by FmHA or its successor 
agency under Public Law 103-354, indicating whether a nondiscrimination 
agreement has been signed, and giving any other available pertinent 
information about the complaint.

[41 FR 40112, Sept. 17, 1976]



Sec.  1901.203  Title VIII of the Civil Rights Act of 1968.

    FmHA or its successor agency under Public Law 103-354 employees, 
FmHA or its successor agency under Public Law 103-354 borrowers, 
contractors, packagers, and others who provide housing for sale or rent, 
are obligated under the provisions of title VIII of the Civil Rights Act 
of 1968 to provide fair housing to all persons regardless of race, 
color, religion, sex, or national origin.
    (a) Coverage. The prohibitions against discrimination in the sale, 
rental, or financing of housing contained in title VIII apply to:
    (1) All dwellings financed by loans made by the Federal Government 
and, therefore, to all RH borrowers.
    (2) Any person in the business of selling or renting dwellings 
defined as:
    (i) The owner of a dwelling intended for occupancy by five or more 
families.
    (ii) Any person who has participated as principal in the sale or 
rental of three or more dwellings in the past year.
    (iii) Any person who has served as sale or rental agent in two or 
more transactions in the past year.
    (b) Discrimination acts prohibited. Title VIII prohibits FmHA or its 
successor

[[Page 23]]

agency under Public Law 103-354 employees, multiple housing borrowers, 
and those with whom FmHA or its successor agency under Public Law 103-
354 does business (contractors, realtors, packagers) from:
    (1) Refusing to sell or rent a particular dwelling because of a 
person's race, color, religion, or national origin. The following 
actions constitute violations of this provision:
    (i) Refusing to package an RH loan application.
    (ii) Refusing or failing to show a particular dwelling or home in a 
particular subdivision.
    (iii) Directing persons only to areas populated by those of similar 
race, color, religion, or national origin when housing is available in 
other areas.
    (iv) Representing unsold dwellings or sites as sold to prospective 
buyers.
    (2) Requiring applicants for services to meet different terms or 
conditions because of their race, color, religion, or national origin; 
for example, requiring larger rents or downpayments from minority 
applicants.
    (3) Including in any advertising either directly or through visual 
representation a preference for applicants of a particular race or 
ethnic origin.
    (i) Words indicative of the race or ethnic background of the 
dwelling or landlord such as ``White private home,'' or ``all Black 
subdivision,'' may not be used in advertising housing financed or to be 
financed by FmHA or its successor agency under Public Law 103-354.
    (ii) Selection of advertising media and the areas to be covered by 
any advertising must be made to reach potential applicants of all races 
or ethnic origins.
    (c) FmHA or its successor agency under Public Law 103-354 
affirmative action. (1) It is the policy of the Farmers Home 
Administration or its successor agency under Public Law 103-354 to 
administer its housing program affirmatively so individuals of similar 
income levels in the housing market area have housing choices available 
to them regardless of their race, color, religion, sex, or national 
origin. Each participant in FmHA or its successor agency under Public 
Law 103-354 housing program shall pursue affirmative fair housing 
marketing policies in soliciting buyers and tenants, in determining 
their eligibility and in concluding sales and rental transactions.
    (2) Applicability. The affirmative fair housing marketing 
requirements shall apply as follows:
    (i) Participants in FmHA or its successor agency under Public Law 
103-354 housing programs who request approval for subdivision 
development involving five or more sites, multi-family projects with 
five or more units including self-help technical assistance grantees 
assisting five or more families or five or more conditional commitments 
for single family dwelling units during a 12-month period must submit an 
affirmative marketing plan.
    (ii) An Affirmative Fair Housing Marketing Plan is required to be 
prepared and submitted to FmHA or its successor agency under Public Law 
103-354 by the contractor when:
    (A) A real estate broker is offering five or more single-family 
dwellings located in the same subdivision for sale under an exclusive 
listing contract with FmHA or its successor agency under Public Law 103-
354.
    (B) An auctioneer under contract with FmHA or its successor agency 
under Public Law 103-354 is offering five or more single-family 
dwellings located in the same subdivision for sale by public auction.
    (C) A contractor under a contract with FmHA or its successor agency 
under Public Law 103-354 is managing a multiple-family housing project 
of five or more units or five or more single-family dwellings located in 
the same subdivision.
    (3) Affirmative fair housing marketing plans will be submitted on 
form HUD 935.2(3-76) or the participant must be a signatory to a 
voluntary affirmative marketing agreement approved by the Department of 
Housing and Urban Development. The plan, if submitted on form HUD 
935.2(3-76) shall describe an affirmative program which will meet the 
following requirements:
    (i) Reaching those prospective buyers or tenants, regardless of sex, 
of majority and minority groups in the marketing area who traditionally 
would

[[Page 24]]

not be expected to apply for such housing without special outreach 
efforts because of existing racial or socio-economic patterns.
    (ii) Undertaking and/or maintaining a non-discriminatory hiring 
policy in recruiting from both majority and minority groups including 
both sexes, for staff engaged in the sale or rental of properties.
    (iii) Training and instructing employees engaged in the sale or 
rental properties in the policy and application of nondiscrimination and 
fair housing.
    (iv) Displaying in all sales and rental offices the ``Fair Housing'' 
poster.
    (v) Posting in a conspicuous position on each property and FmHA or 
its successor agency under Public Law 103-354 construction site a sign 
displaying the equal opportunity logo or the following statement:

    We are pledged to the letter and spirit of U.S. policy for the 
achievement of equal housing opportunity throughout the nation. We 
encourage and support an affirmative advertising and marketing program 
in which there are no barriers to obtaining housing because of race, 
color, religion, sex, or national origin.

    (vi) Undertaking efforts to publicize the availability of housing 
opportunities to minority persons through the type of media customarily 
used by the applicant or participant, including minority publications 
and other minority outlets available in the housing market area. As part 
of these efforts all advertising must include either the equal housing 
opportunity logo or statement. When illustrations or persons are 
included they shall depict persons of both sexes and of majority and 
minority groups.
    (4) The affirmative fair housing marketing plans or evidence that 
the participant is covered by an approved voluntary affirmative 
marketing agreement must be submitted as follows:
    (i) For subdivisions with the preliminary submission of plans and 
specifications.
    (ii) For multi-family projects, including rural rental housing, 
labor housing, cooperative housing, technical assistance grants and site 
development loans with SF 424.1, ``Application for Federal Assistance 
(For Non-construction)'', or SF 424.2, ``Application for Federal 
Assistance (For Construction)'', or with the letter of application. 
Subsequent loans or grants extended to the participant will necessitate 
a new or updated plan.
    (iii) For conditional commitments for five or more individual 
dwelling units in a 12-month period with the application for the fifth 
conditional commitment.
    (iv) For real estate brokers listing housing properties on an 
exclusive basis, at any time more than 5 properties are listed for sale 
by FmHA or its successor agency under Public Law 103-354 in the same 
subdivision.
    (5) Affirmative fair housing marketing plans will cover the 
following time periods:
    (i) For subdivision, from time of application until all lots are 
sold.
    (ii) For multi-family projects from time of application until the 
loan is paid in full or for so long as the project is being used for the 
same or a similar purpose for which the funds were extended.
    (iii) For conditional commitments involving individual dwelling 
units, one year or until all units built through conditional commitments 
issued within the one year period have been sold.
    (iv) For real estate brokers who list acquired rural housing 
properties under an exclusive listing contract, one year or until all 
properties covered under the plan have been sold, whichever is later.
    (6) Affirmative fair housing marketing plans will be reviewed and 
approved by the official authorized to approve the assistance requested. 
The County Supervisor will review and submit with comments to the 
official authorized to approve the assistance requested, those fair 
housing marketing plans where the assistance requested exceeds his 
approval authority. Any participant covered by this section must have an 
approved affirmative fair housing marketing plan for any assistance 
approved 90 or more days after the issuance of these regulations.
    (7) Approved affirmative fair housing marketing plans will be made 
available by the participant for public inspection at the participant's 
place of business

[[Page 25]]

and at each sales or rental office. Participants who fulfill the 
requirements of this section by filing a Form HUD 9352(3-76) will 
maintain records to reflect their efforts in fulfilling the affirmative 
fair housing marketing plan. These records will be made available for 
review by FmHA or its successor agency under Public Law 103-354 
personnel. Affirmative fair housing marketing plans will be reviewed by 
FmHA or its successor agency under Public Law 103-354 personnel in 
accordance with section 2006-M of this chapter.
    (8) Applicants failing to comply with these requirements will be 
liable to sanctions authorized by regulations, rules or policies 
governing the program in which they are participating including but not 
limited to denial of further participation in FmHA or its successor 
agency under Public Law 103-354 programs and referral to the Department 
of Justice for suit by the United States for injunctive or other 
appropriate relief.
    (d) Discrimination complaints. (1) Complaints against FmHA or its 
successor agency under Public Law 103-354 employees or borrowers under 
title VIII of the Civil Rights Act of 1968 received by the County Office 
will be sent to the State Director. The State Director will forward the 
complaints to the Administrator, Attention: Equal Opportunity Officer.
    (2) Complaints of discrimination against packagers, contractors or 
others with whom FmHA or its successor agency under Public Law 103-354 
deals should be filed with the Department of Housing and Urban 
Development. However, these complaints may be accepted by FmHA or its 
successor agency under Public Law 103-354 employees and routed through 
the State Director to the Administrator, Attention: Equal Opportunity 
Officer.
    (e) Relations to other regulations. Nothing in this section in any 
way interferes with the administration of the nondiscrimination 
requirements of Title VI of the Civil Rights Act of 1964 or the ``Equal 
Opportunity in Housing Certification,'' signed by all packagers.

[41 FR 40112, Sept. 17, 1976, as amended at 42 FR 45894, Sept. 13, 1977; 
42 FR 58737, Nov. 11, 1977; 50 FR 23903, June 7, 1985; 53 FR 27825, July 
25, 1988; 55 FR 13503, Apr. 11, 1990]



Sec.  1901.204  Compliance reviews.

    (a) Recipients subject to reviews. Recipients of the following kinds 
of loans and/or grants who received their loans or advances of funds on 
or after January 3, 1965, will be reviewed for compliance in accordance 
with Title VI of the Civil Rights Act of 1964. Guaranteed loans are not 
covered by Title VI and, therefore, are not subject to compliance 
reviews.
    (1) Farm Ownership loans to install or improve recreational 
facilities or other nonfarm enterprises.
    (2) Operating loans to install or improve recreational facilities or 
other nonfarm enterprises.
    (3) Economic Opportunity loans to individuals for nonagricultural 
enterprises.
    (4) Individual Recreation loans.
    (5) Loans for Water and Waste Disposal facilities, including 
Resource Conservation and Development loans for this purpose.
    (6) Community Facility loans.
    (7) Watershed loans and advances.
    (8) Recreation Association loans including those made from Resource 
Conservation and Development funds.
    (9) Economic Opportunity loans to incorporated cooperative 
associations (Compliance reviews on unincorporated Economic Opportunity 
cooperatives subject to title VI will be conducted only as the need 
arises or as directed by either the State Director or the 
Administrator).
    (10) Grazing Association loans, including Resource Conservation and 
Development loans for this purpose.
    (11) Loans to Timber Development organizations.
    (12) Rural Renewal loans and advances.
    (13) Rural Rental Housing (formerly Senior Citizen rental) and Rural 
Cooperative Housing loans.
    (14) Labor Housing loans and/or grants.
    (15) Rural Housing Site loans.
    (16) Business and Industrial Insured loans or grants.
    (17) Technical Assistance grants.
    (18) Development grants for water and waste disposal.
    (19) Technical Assistance and Training grants in accordance with 
Title XIII of Pub. L. 99-198.

[[Page 26]]

    (20) Rural Business Enterprise grants and Television Demonstration 
grants.
    (21) Section 601 Energy Impacted Area Development Assistance grants.
    (22) Nonprofit National Corporations grants.
    (23) System for Delivery of Certain Rural Development Programs Panel 
Grants.
    (24) Emergency Community Water Assistance grants.
    (25) Section 306C WWD loans and grants.
    (26) Housing Application Packaging Grants.
    (27) Rural and Cooperative Development Grants in subpart F of part 
4284 of this title.
    (28) Community Facilities Grants in part 3570, subpart B, of this 
title.
    (b) Duration of obligation for conducting reviews. Compliance 
reviews will be conducted on recipients of loans and grants listed in 
paragraph (a) of this section:
    (1) Until the loan is paid in full or otherwise satisfied; or sold 
through the sale of FmHA or its successor agency under Public Law 103-
354's assets; or
    (2) Until the last advance of grant funds is made for the grants 
listed in paragraph (a) of this section.
    (c) Compliance reviews of loans and grants to individuals--(1) 
Compliance Review Officer. The County Supervisor will conduct compliance 
reviews of loans made to individuals.
    (2) Type of review. If the borrower is currently receiving loan 
supervision, the County Supervisor may complete the compliance review 
based on his knowledge of the borrower's operations from other visits. 
Otherwise the County Supervisor must visit the borrower's facilities. 
Before completing the compliance review, the County Supervisor should be 
aware of:
    (i) The borrower's operating regulations, for example, the grounds 
for eviction from a Rural Rental Housing Project.
    (ii) The borrower's method of advertising the facility to the 
public, if there is any advertising, including how well these methods 
reach the minority community.
    (iii) Any records of request for use of the borrower's facility.
    (3) Recording results of review. The County Supervisor's 
determination that the borrower is or is not in compliance with title 
VI, together with information such as that outlined in paragraph (b)(2) 
of this section, will be recorded in the running record. Review of 
individual Rural Rental Housing borrowers will be recorded on Form FmHA 
or its successor agency under Public Law 103-354 400-8, ``Compliance 
Review (Nondiscrimination by Recipients of Financial Assistance Through 
FmHA or its successor agency under Public Law 103-354.)''
    (4) Reporting results of review. If the borrower is in compliance, 
the County Supervisor will report his findings to the State Director. 
Exhibit A is a sample report. In the case of Rural Rental Housing 
borrowers, a copy of Form FmHA or its successor agency under Public Law 
103-354 400-8 will be filed in the borrower's County Office loan docket, 
and the original will be sent to the State Director. If the borrower is 
not in compliance, the borrower's name, location, type of loan involved, 
and the reasons for the finding of noncompliance will be sent to the 
State Director.
    (5) Forwarding report of noncompliance. The State Director will see 
that all compliance review reports are complete. If the recipient was 
found in noncompliance, the State Director will immediately send a copy 
of the compliance review report to the Administrator, Attention: Equal 
Opportunity Officer, with recommended action to take to bring the 
recipient into compliance.
    (d) Review of loans or grants to organizations (any borrower or 
grantee other than an individual)--(1) Designation of compliance review 
officer. The State Director, except for Technical Assistance and 
Training grants (Pub. L. 99-198) and Nonprofit National Corporations 
grants, will designate the Compliance Review Officer for recipient 
organization. County Supervisors may be designated only if they have 
received approved compliance review training. Otherwise, the Compliance 
Review Officer must be a member of the State staff. For Technical 
Assistance and

[[Page 27]]

Training grants and Nonprofit National Corporations grants, the 
Assistant Administrator for Community and Business Programs will 
designate the Compliance Review Officer for recipient organizations.
    (2) Type of review. Compliance reviews may be completed in 
connection with regular supervision visits to organizations and must 
include an inspection of the FmHA or its successor agency under Public 
Law 103-354-financed facility. Before determining that the recipient is 
or is not complying with the provisions in Form FmHA or its successor 
agency under Public Law 103-354 400-4, the Compliance Review Officer 
will:
    (i) Observe the recipient's records, including records on the 
present membership by race, the handling of applications for use of the 
facility, the user rates and membership fees or dues, and the facility's 
operating regulations.
    (ii) Determine if the recipient advertises for members or users. If 
so, observe the effectiveness of the recipient's methods of advertising 
the availability of the facility to the public, and especially the 
effectiveness of this advertising in reaching the minority community.
    (iii) Interview organization officials, members, and employees. In 
reviews of recipients of Technical Assistance grants, members of the 
self-help housing groups should be interviewed to determine the way in 
which they were recruited.
    (iv) Interview informed local community leaders, including minority 
leaders, if any to determine if the facility is operating without 
discrimination because of race, color, or national origin.
    (3) Recording results of reviews--(i) Association, Watershed, 
Resource Conservation and Development, and Rural Renewal loans involving 
recreation facilities. Reviews will be recorded on Form FmHA or its 
successor agency under Public Law 103-354 400-7, ``Compliance Reviews 
for Recreational Loans to Associations (FmHA or its successor agency 
under Public Law 103-354 Borrowers).'' If the organization is found in 
compliance with title VI, the original of the form will be sent to the 
State Director, and a copy will be filed in the borrower's County Office 
loan docket. If the organization is found in noncompliance, any 
additional information which led to the finding will be sent with the 
form.
    (ii) Loans and/or grants for Water and Waste Disposal systems, 
incorporated Economic Opportunity cooperatives, Grazing associations, 
Rural Rental Housing, Labor Housing, and Rural Housing Sites. Reviews 
will be completed on Form FmHA or its successor agency under Public Law 
103-354 400-8. The original of the form will be sent to the State 
Director and a copy filed in the borrower's County Office loan docket. 
If the organization is found in noncompliance, any additional 
information which led to the finding will be sent with the form.
    (iii) Timber Development organizations, Rural Cooperative Housing 
loans, and Technical Assistance grants. The information obtained during 
the compliance review as well as the Compliance Review Officer's 
determination of the borrower's compliance or noncompliance will be 
recorded in the running record. If the organization is found in 
compliance, a report (see exhibit A) will be sent to the State Director. 
If the organization is not in compliance, the organization's name, 
location, type of loan received, and all information which led to the 
finding will be sent to the State Director.
    (iv) Technical Assistance and Training grants (Pub. L. 99-198) and 
Nonprofit National Corporations grants. The Compliance Review Officer 
will record in the running record information obtained during the 
compliance review and the determination of recipient's compliance or 
noncompliance. A report will be prepared and sent to the Assistant 
Administrator, Community and Business Programs, for each recipient.
    (4) Mandatory hook-up ordinance. Compliance reviews of public entity 
borrowers or grantees for water and waste disposal facilities who are 
operating under the provisions of a mandatory hook-up ordinance will 
consist of a certification by the borrower or grantee that the ordinance 
is still in effect and is being enforced.
    (5) Forwarding noncompliance report. The State Director will see 
that the reports are complete. If the recipient was

[[Page 28]]

found in noncompliance, the State Director will immediately send a copy 
of the report to the Administrator, Attention: Equal Opportunity 
Officer, with action proposed to bring the recipient into compliance. 
For Technical Assistance and Training grants and Nonprofit National 
Corporations grants, the Assistant Administrator, Community and Business 
Programs, will send a copy of the report to the Equal Opportunity 
Officer.
    (e) Timing of reviews--(1) Reporting year. The State Director will 
schedule Civil Rights compliance reviews from November 1 to October 31 
of each year. For example, compliance reviews scheduled during 1976 
should be conducted after November 1, 1975, but before October 31, 1976.
    (2) Initial reviews--(i) Water and Waste Disposal loan and/or grant. 
The initial compliance review will be conducted before loan or grant 
closing or before the construction begins, whichever occurs first.
    (ii) Technical Assistance grants, Technical Assistance and Training 
grants (Pub. L. 99-198) and Nonprofit National Corporations grants. The 
initial compliance review will be conducted before the grant is closed.
    (iii) Rural Housing Site loan. The initial compliance review will be 
conducted at the beginning of the sale of the sites developed with the 
FmHA or its successor agency under Public Law 103-354 loan.
    (iv) Watershed loans for future water supply. The initial compliance 
review will be made when usage of the stored water begins.
    (v) All other loans and/or grants. The initial compliance review of 
loans and/or grants listed in paragraph (a) of this section will be 
conducted within the first reporting year after the loan or grant is 
closed or after Form FmHA or its successor agency under Public Law 103-
354 400-4 is signed.
    (3) Subsequent reviews. The State Director is responsible for 
requiring subsequent compliance reviews at intervals not less than 90 
days, or more than 3 years, after the previous compliance review.
    (i) For Water and Waste Disposal organizations with loans that have 
had at least two compliance reviews after loan closing covering a six-
year period, and where no discriminatory practices are indicated, the 
frequency of subsequent reviews may be reduced to six years.
    (ii) If Water and Waste Disposal organizations have merged to form a 
new organization, two reviews will be conducted at 3-year intervals 
after the merger and one every 6 years thereafter, provided no 
discriminatory practices are noted.
    (f) State Office summary reports. The State Director will keep a 
list of all compliance reviews conducted during the reporting year so as 
to schedule each year's reviews. The State Director will submit a copy 
of this list to the Administrator, Attention: Equal Opportunity Office, 
no later than July 31 of each year. Recipients found in noncompliance 
will also be listed on the summary report. Exhibit B is a sample report. 
For Technical Assistance and Training grants and Nonprofit National 
Corporations grants, the Assistant Administrator, Community and Business 
Programs, will submit a summary report, using exhibit B of this subpart 
as a guide, to the Equal Opportunity Officer by July 31 of each year.

[41 FR 40112, Sept. 17, 1976, as amended at 52 FR 41949, Nov. 2, 1987; 
53 FR 3860, Feb. 10, 1988; 55 FR 5962, Feb. 21, 1990; 57 FR 11559, Apr. 
6, 1992; 58 FR 5565, Jan. 22, 1993; 58 FR 58643, Nov. 3, 1993; 59 FR 
41389, Aug. 12, 1994; 61 FR 3781, Feb. 2, 1996; 62 FR 16468, Apr. 7, 
1997; 62 FR 33510, June 19, 1997; 62 FR 42387, Aug. 7, 1997]

    Effective Date Note: At 68 FR 69952, Dec. 16, 2003, Sec.  1901.204 
was amended by removing paragraphs (a)(1), (2), (4), and (10), 
redesignating paragraph (a)(3) as paragraph (a)(1), redesignating 
paragraphs (a)(5) through (9) as paragraphs (a)(2) through (6), and 
redesignating paragraphs (a)(11) through (28) as paragraphs (a)(7) 
through (24), effective January 15, 2004.



Sec.  1901.205  Nondiscrimination in construction financed with FmHA 
or its successor agency under Public Law 103-354 loan or grant.

    Executive Order 11246 provides for equal employment opportunity 
without regard to race, color, religion, sex, or national origin and the 
elimination of all facilities segregated on the basis of race, color, 
religion, or national origin on construction work financed by

[[Page 29]]

FmHA or its successor agency under Public Law 103-354 involving a 
construction contract of more than $10,000.
    (a) Compliance. This section applies to Federal or federally 
assisted construction contracts or subcontracts in excess of $10,000 for 
on-site construction. It also applies to invitations for bids published 
for such construction. If construction work of over $10,000 is partially 
financed by another Federal Agency, the County Supervisor will try to 
reach an agreement as to which agency will administer the 
nondiscrimination requirements. If unable to reach an agreement, the 
County Supervisor will refer the case to the State Director.
    (b) Requirements of applicants, contractors, or subcontractors and 
responsible FmHA or its successor agency under Public Law 103-354 
officials--(1) Applicant. The applicant will be required to execute Form 
FmHA or its successor agency under Public Law 103-354 400-1, ``Equal 
Opportunity Agreement,'' at the time the loan is closed or before 
construction is started, whichever occurs first. If the applicant is an 
incorporated association, a resolution of the governing body will 
authorize execution of the form. Municipalities or other public bodies 
will have to incorporate references to this form in the loan resolution 
before it is adopted. If the applicant wants to publish for bids, the 
applicant must obtain Form FmHA or its successor agency under Public Law 
103-354 1924-5, ``Invitation for Bid (Construction Contract)'' which is 
in compliance with Executive Order 11246, from the local FmHA or its 
successor agency under Public Law 103-354 County Supervisor.
    (2) Contractor or Subcontractor. (i) The prospective contractor or 
subcontractor must submit Form FmHA or its successor agency under Public 
Law 103-354 400-6, ``Compliance Statement,'' to the County Supervisor 
before contract bid negotiations, and comply with the requirements of 
Executive Order 11246, which are included with Form FmHA or its 
successor agency under Public Law 103-354 1924-6, ``Construction 
Contract,'' during the performance of the contract. The contract will 
contain the required ``Standard Federal Equal Employment Opportunity 
Construction Contract Specifications'' goals and timetables as set forth 
in exhibit D.
    (ii) The contractor or subcontractor will prepare and submit Form 
Contract Compliance (CC) 257, ``Monthly Employment Utilization Report'' 
to the appropriate regional office of the U.S. Department of Labor 
(USDL) (see exhibit E, ``List of Regional Offices'') by the fifth of 
each month through completion of the contract.
    (3) The County Supervisor or the responsible FmHA or its successor 
agency under Public Law 103-354 official will: (i) Deliver to the 
contractor the following forms, as appropriate:
    (A) Form FmHA or its successor agency under Public Law 103-354 400-
3, ``Notice to Contractors and Applicants,'' with an attached Equal 
Employment Opportunity Poster. Posters in Spanish will be provided when 
appropriate,
    (B) Form FmHA or its successor agency under Public Law 103-354 400-
6, and
    (C) Form CC 257.
    (ii) Deliver to the applicant Form FmHA or its successor agency 
under Public Law 103-354 1924-5 when contractors are to be invited to 
submit bids, and Form FmHA or its successor agency under Public Law 103-
354 1924-6 to contract for construction.
    (iii) Explain to applicant and contractor the requirements of 
Executive Order 11246, when needed. However, inquiries concerning 
compliance must be addressed to the appropriate regional office of USDL 
(see exhibit E).
    (iv) Submit a report similar in form and content to exhibit C 
(``FmHA or its successor agency under Public Law 103-354 Financed 
Contract'') of this Instruction to the appropriate regional office of 
USDL (Exhibit E) within 10 calendar days of the date a contract or 
subcontract in excess of $10,000 is awarded.
    (c) Contractors with 100 or more employees and contract over 
$10,000. Contractors with 100 or more employees and contract over 
$10,000, will file the following with the Joint Reporting Committee, 
1800 G Street NW., Washington, DC 20006:

[[Page 30]]

    (1) SF-100 ``Employer Information Report EEO-1,'' within 30 days of 
contract award unless the report has been submitted within the past 12 
months, and
    (2) An annual report by March 31, so long as the contractor holds 
any FmHA or its successor agency under Public Law 103-354 financed 
contract in excess of $10,000.
    (d) Contractor with at least 50 employees and contract of $50,000 or 
more. Each contractor or subcontractor with at least 50 employees and 
contract of $50,000 or more, must develop a written affirmative action 
compliance program for each project. This must be on file in each 
contractor's or subcontractor's personnel file within 120 days after the 
beginning of the contract. Form AD-425 provides guidelines for 
developing compliance programs.
    (e) Compliance during construction. The County Supervisor will:
    (1) Check to see that:
    (i) Required posters are displayed.
    (ii) There is no evidence of discrimination in employment.
    (2) Record findings on Form FmHA or its successor agency under 
Public Law 103-354 1924-12, ``Inspection Report.''
    (3) If there is any evidence of noncompliance, the County Supervisor 
will report all the facts to the appropriate office of USDL (see exhibit 
E).
    (f) Hometown Plans. All construction contracts and subcontracts in 
excess of $10,000, financed by FmHA or its successor agency under Public 
Law 103-354, in areas which have Hometown Plans regarding affirmative 
action and equal employment, are subject to the conditions set forth in 
the applicable plan. Each State Director should seek the advice of the 
OGC as to compliance with any such plans in the State Director's 
jurisdiction.
    (g) Discrimination complaints. (1) Complaints alleging 
discriminatory acts may be filed directly with the appropriate regional 
office of USDL (see exhibit E) or with the County Supervisor or the 
State Director for subsequent forwarding to the above address, by any 
employee or applicant for employment with a contractor or subcontractor.
    (2) Each complaint must be in writing and signed by the complainant 
(The FmHA or its successor agency under Public Law 103-354 official 
receiving the complaint will assist complainant when necessary). The 
complaint will include:
    (i) Name, address, and telephone number of complainant.
    (ii) Name and address of the person allegedly discriminating.
    (iii) Date and place of the discrimination.
    (iv) Description of the discrimination.
    (v) Any other information that will assist in investigating and 
resolving the complaint.
    (3) Complaints must be filed not later than 180 days after the 
alleged act unless the State Director extends the time, for good cause 
shown by the complainant.

[43 FR 58356, Dec. 14, 1978, as amended at 44 FR 24852, Apr. 27, 1979; 
52 FR 8002, Mar. 13, 1987]

  Exhibit A to Subpart E of Part 1901--Civil Rights Compliance Reviews

To: State Director, FmHA or its successor agency under Public Law 103-
354.

    Civil Rights compliance reviews have been conducted, and each 
recipient listed below was found in compliance with title VI of the 
Civil Rights Act of 1964. Information which led to this finding and my 
determination that the recipient is in compliance are in the running 
record of the recipient's file.

----------------------------------------------------------------------------------------------------------------
                                                                    Type of assistance
               Recipient                         Case No.                  \1\               Date of review
----------------------------------------------------------------------------------------------------------------
Sam H. Smith..........................  99-05-7031 (rec.)........  OL                   Jan. 3, 1975.
John A. Jones.........................  99-05-8764...............  RL                   Feb. 17, 1975.
Medina Housing Association............  99-05-9176 grant.........  TA                   Mar. 5, 1975.
----------------------------------------------------------------------------------------------------------------
\1\ Indicate only the loans or grants received which are subject to compliance reviews.

________________________________________________________________________
                                                       County Supervisor

[[Page 31]]

  Exhibit B to Subpart E of Part 1901--Summary Report of Civil Rights 
                           Compliance Reviews

To: Administrator, FmHA or its successor agency under Public Law 103-
354.
Attention: Director, Equal Opportunity Staff.
    I. Civil Rights Compliance Reviews have been conducted, and the 
following recipients were found in compliance with title VI of the Civil 
Rights Act of 1964.

------------------------------------------------------------------------
                                                        Type of review
                                                    --------------------
                Loan type           Loan number        Pre-award* post-
                                                           award**
------------------------------------------------------------------------
1.
2.
3.
------------------------------------------------------------------------
*A pre-award review is a compliance review conducted prior to loan or
  grant approval.
**A post-award review is a compliance review conducted after loan
  closing.

      
    II. The following recipients were found in non-compliance:

----------------------------------------------------------------------------------------------------------------
                                                                            Type of review
                                                                         --------------------   Date report of
        Name of borrower               Loan type          Loan number       Pre-award post-   noncompliance sent
                                                                                 award           to nat. ofc.
----------------------------------------------------------------------------------------------------------------
1.
2.
3.
----------------------------------------------------------------------------------------------------------------

  ______________________________________________________________________
________________________________________________________________________
State Director.

(7 U.S.C. 1989; 42 U.S.C. 1480; 7 CFR 2.23; 7 CFR 2.70)

[47 FR 39127, Sept. 7, 1982]

Exhibit C to Subpart E of Part 1901--FmHA or Its Successor Agency Under 
                  Public Law 103-354 Financed Contract

To: Area Director, Office of Federal Contract Compliance Program, U.S. 
          Department of Labor (DOL) (Insert address for your DOL area, 
          from exhibit E, FmHA or its successor agency under Public Law 
          103-354 Instruction 1901-E)

    We submit the following information relative to a construction 
contract in excess of $10,000:

1. Contractor's name:___________________________________________________
Address:________________________________________________________________
Telephone Number:_______________________________________________________
Employer's Identification Number:_______________________________________

2. Contract for: ---- $----------

Starting Date:__________________________________________________________
Completion Date:________________________________________________________
Contract Number:________________________________________________________
City:___________________________________________________________________
DOL Region:_____________________________________________________________

[52 FR 8002, Mar. 13, 1987]

Exhibit D to Subpart E of Part 1901--Goals and Timetables for Minorities 
                                and Women

    The preamble to regulations establishing a new part 60-4 to 41 CFR 
chapter 60 published at 43 FR 14888-14894, April 7, 1978, states that 
OFCCP contemplates proposing standards and goals for minorities within 
the very near future. Until that notice has been proposed and final 
action taken, construction contractors and subcontractors will continue 
to be subject to the goals and timetables for minority utilization on 
Federal and federally assisted construction existing now under Executive 
order 11246. Such goals are published in appendix B.
    Now, therefore, based on the foregoing and 41 CFR part 60-4, each 
contracting agency, each applicant, and each contractor shall include 
the appropriate goal set forth in appendix A and appendix B in all 
invitations for bids or other solicitations for federally involved 
construction contracts in excess of $10,000. The goals in appendix A 
hereby are established on a nationwide basis as the standards for female 
utilization for all trades.
    Appendix B established the goals for minority utilization which 
shall be applicable for the respective areas set forth in appendix B.
    Appendix A and appendix B shall be effective with respect to 
transactions for which the invitations for bids or other solicitations 
or amendments thereto are sent, on or after May 8, 1978.
                                                      Weldon J. Rougeau,
                                                        Director, OFCCP.
    March 28, 1978.

                               Appendix A

    The following goals and timetables for female utilization shall be 
included in all Federal and federally assisted construction contracts 
and subcontracts in excess of $10,000. The goals are applicable to the 
contractor's aggregate on-site construction workforce

[[Page 32]]

whether or not part of that workforce is performing work on a Federal or 
federally assisted construction contract or subcontract.

                              area covered

    Goals for Women apply nationwide.

                          Goals and Timetables
------------------------------------------------------------------------
                                                                 Goals
                          Timetable                            (percent)
------------------------------------------------------------------------
From Apr. 1, 1978 until Mar. 31, 1979........................        3.1
From Apr. 1, 1979 until Mar. 31, 1980........................        5.1
From Apr. 1, 1980 until Mar. 31, 1981........................        6.9
------------------------------------------------------------------------

                               Appendix B

    Until further notice, the following goals and timetables for 
minority utilization shall be included in all Federal or federally 
assisted construction contracts and subcontracts in excess of $10,000 to 
be performed in the respective covered areas. The goals are applicable 
to the contractor's aggregate on-site construction workforce whether or 
not part of that workforce is performing work on a Federal or federally 
assisted construction contract or subcontract.

                               Region \1\
---------------------------------------------------------------------------

    \1\ Region refers to the 10 regions in which the U.S. Department of 
Labor has offices. These Regions are headquartered in Boston, New York, 
Philadelphia, Atlanta, Chicago, Dallas, Kansas City, Denver, San 
Francisco, and Seattle, which are numbered I through X respectively.
---------------------------------------------------------------------------

                           boston, mass. area

    Area covered--Arlington, Boston, Belmont, Brookline, Burlington, 
Cambridge, Canton, Chelsea, Dedham, Everett, Malden, Medford, Wakefield, 
Westwood, Winthrop, Winchester, Woburn, and the Islands of Boston 
Harbor, Mass.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  Asbestos workers............  10.8-10.12
                                Boilermakers................    9.6-12.0
                                Bricklayers.................    8.0-10.0
                                Carpenters..................   11.6-14.5
                                Cement masons...............   25.5-27.5
                                Electricians................     6.0-7.0
                                Elevator constructors.......    9.5-11.4
                                Glaziers....................    8.8-11.0
                                Ironworkers.................     5.9-6.9
                                Lathers.....................     6.9-8.9
                                Operating engineers.........   14.1-15.0
                                Painters....................    9.1-11.1
                                Pipefitters.................   11.0-12.1
                                Plasterers..................   20.5-22.5
                                Plumbers....................    9.8-11.8
                                Roofers.....................    8.4-10.5
                                Sheetmetal workers..........   10.1-12.1
                                Sprinkler fitters...........   12.3-15.6
                                All other trades............   10.3-12.3
------------------------------------------------------------------------

                       state of rhode island area

    Area covered--Statewide.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................         5.0
------------------------------------------------------------------------

                                region ii

                            buffalo, ny area

    Area covered--Erie County and Buffalo, NY.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
              Timetable                        Trade             Goal
------------------------------------------------------------------------
Until further notice................  All...................   10.6-13.2
------------------------------------------------------------------------

                             camden, nj area

    Area covered--Camden, NJ, area of Camden, Salem, and Gloucester 
Counties.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  Asbestos workers............   11.6-14.5
                                Boilermakers................   10.8-13.5
                                Bricklayers.................   17.8-20.0
                                Carpenters..................   11.2-13.0
                                Cement masons...............   12.0-15.0
                                Electricians................   14.9-17.8
                                Elevator constructors.......   10.8-13.5
                                Glaziers....................   16.0-20.0
                                Lathers.....................   10.8-13.5
                                Operating engineers.........   10.0-12.5
                                Painters/decorators/            8.8-12.8
                                 paperhangers.
                                Plasterers..................   17.0-19.0
                                Plumbers/pipefitters/           8.4-10.5
                                 steamfitters.
                                Roofers.....................    8.4-10.5
                                Sheetmetal workers..........   11.2-14.0
                                Sprinkler fitters...........   10.8-13.5
                                Structural metal workers....   12.9-15.3
                                Wharf 7 dock builders.......   10.8-13.5
------------------------------------------------------------------------

                             elmira, ny area

    Area covered--Chemung, Steuben, Schuyler, Tioga, and Yates Counties, 
NY.

[[Page 33]]



                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................     4.0-5.0
------------------------------------------------------------------------

                          long island, ny area

    Area covered--Nassau and Suffolk Counties, NY.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................     6.0-8.0
------------------------------------------------------------------------

                          westchester, ny area

    Area covered--Westchester County, NY.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................       11-13
------------------------------------------------------------------------

                               region iii

                         state of delaware area

    Area covered--State of Delaware.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................       11-13
------------------------------------------------------------------------

                         philadelphia, pa, area

    Area covered--Bucks, Chester, Delaware, Montgomery, and Philadelphia 
Counties, PA.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  Ironworkers.................       22-26
                                Plumbers and pipefitters....       20-24
                                Steamfitters................       20-24
                                Sheetmetal workers..........       19-23
                                Electrical workers..........       19-23
                                Elevator construction              19-23
                                 workers.
------------------------------------------------------------------------

                          pittsburgh, pa, area

    Area covered--Allegheny County, PA.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  Asbestos workers............   24.3-27.8
                                Boilermakers................   33.8-37.7
                                Bricklayers.................   11.9-13.0
                                Carpenters..................   11.8-12.9
                                Cement masons...............   16.3-18.1
                                Electricians................   17.0-20.3
                                Glaziers....................   26.9-30.4
                                Ironworkers.................   25.5-29.9
                                Lathers.....................   12.7-13.8
                                Operating engineers.........   44.2-48.3
                                Painters....................   16.4-17.9
                                Plasterers..................   34.3-38.0
                                Plumbers....................     7.8-9.2
                                Roofers.....................   47.1-50.1
                                Sheetmetal workers..........   26.0-26.9
                                Steamfitters................   10.1-12.9
                                Tile setters................   13.6-16.0
                                All other...................   27.6-31.5
------------------------------------------------------------------------

                          washington, dc, area

    Area covered--District of Columbia; the Virginia cities of 
Alexandria, Fairfax, and Falls Church; the Virginia counties of 
Arlington, Fairfax, Loudoun, and Prince William; and the Maryland 
counties of Montgomery and Prince Georges.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  Electricians................   28.0-34.0
                                Painters and paperhangers...   35.0-42.0
                                Plumbers, pipefitters and      25.0-30.0
                                 steamfitters.
                                Iron workers................   35.0-43.0
                                Sheetmetal workers..........   25.0-31.0
                                Elevator constructors.......   34.0-40.0
                                Asbestos workers............   26.0-32.0
                                Lathers.....................   34.0-40.0
                                Boilermakers................   24.0-30.0
                                Tile and terrazzo workers...   28.0-34.0
                                Glaziers....................   28.0-34.0
------------------------------------------------------------------------

                                Region IV

                            atlanta, ga, area

    Area covered--Atlanta, GA, Standard Metropolitan Statistical Area 
which includes Fulton, DeKalb, Cobb, Clayton, and Gwinnett Counties.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  Asbestos workers............    8.6-10.3
                                Bricklayers.................   16.3-18.2
                                Carpenters..................   11.0-12.8
                                Electricians................   10.9-12.2
                                Glaziers....................   10.2-12.2
                                Ironworkers.................   14.0-16.0
                                Metal lathers...............   10.0-12.0
                                Painters....................   10.3-12.0
                                Plumbers....................    9.4-10.9

[[Page 34]]

 
                                Pipefitters.................    9.4-10.9
                                Plasterers..................   24.4-25.8
                                Roofers.....................   18.0-20.0
                                Sheetmetal workers..........    9.5-11.3
                                Sprinkler fitters...........     8.3-9.9
                                Operating engineers.........   24.0-27.7
                                Elevator installers.........    9.6-11.5
------------------------------------------------------------------------

                          birmingham, al, area

    Area covered--Jefferson, Shelby, and Walker Counties, AL.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................       20-24
------------------------------------------------------------------------

                           charlotte, nc, area

    Area covered--Mecklenburg and Union Counties, NC.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................       24-30
------------------------------------------------------------------------

                         jacksonville, fl, area

    Area covered--Drival County, FL.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................       20-23
------------------------------------------------------------------------

                          louisville, ky, area

    Area covered--Adair, Barren, Bullitt, Carrol, Edmundson, Grayson, 
Green, Hardin, Hart, Henry, Jefferson, Larue, Meade, Nelson, Oldham, 
Shelby, Spencer, Taylor, Trimble, Warren, and Washington Counties, KY; 
and Clark, Floyd and Harrison Counties, IN.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   12.0-16.0
------------------------------------------------------------------------

                             miami, fl, area

    Area covered--Dade County, FL.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   20.0-40.0
------------------------------------------------------------------------

                           nashville, tn, area

    Area covered--City of Nashville, TN.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   16.0-20.0
------------------------------------------------------------------------

                                Region V

                             akron, oh, area

    Area covered--Summit, Portage, and Medina Counties, OH.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   10.0-12.5
------------------------------------------------------------------------

                            canton, oh, area

    Area covered--Carroll, Holmes, Stark, Tuscarawas, and Wayne 
Counties, OH.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................     7.0-8.4
------------------------------------------------------------------------

                            chicago, il, area

    Area covered--Cook, DuPage, Kane, Lake, McHenry, and Will Counties.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  Asbestos workers............    8.6-10.3
                                Bricklayers.................    16.3-8.2
                                Carpenters..................   11.0-12.8
                                Electricians................   10.9-12.2
                                Elevator installers.........    9.6-11.5
                                Glaziers....................   10.2-12.2
                                Ironworkers.................   14.0-16.0
                                Metal lathers...............   10.0-12.0
                                Painters....................   10.3-12.1
                                Plumbers....................    9.4-10.9
                                Pipe fitters................    9.4-10.9
                                Plasterers..................   24.4-25.8
                                Roofers.....................   18.0-20.0
                                Sheetmetal workers..........    9.5-11.3
                                Sprinkler fitters...........     8.3-9.9
                                Operating engineers.........       (\1\)
------------------------------------------------------------------------
\1\ 15.7 and above.


[[Page 35]]

                          cincinnati, oh, area

    Area covered. Ohio counties of Clermont, Hamilton, and Warren and in 
the Kentucky counties of Boone, Campbell, and Kenton, and in the Indiana 
county of Dearborn.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  Asbestos workers............    9.3-12.2
                                Boilermakers................     8.0-8.4
                                Carpenters..................    9.0-10.7
                                Elevator constructors.......   10.2-12.7
                                Engineers (stationary)......   26.9-28.4
                                Floor layers................    9.0-10.5
                                Glaziers....................    9.1-11.1
                                Lathers.....................    9.3-10.6
                                Marble, tile and terrazzo        8.3-9.9
                                 workers and helpers.
                                Millwrights.................    9.1-10.3
                                Painters....................   11.0-13.5
                                Pipefitters.................   10.0-12.0
                                Plasterers..................  8.7 to 9.6
                                Plumbers....................   10.0-12.7
                                Sheetmetal workers..........   10.1-11.3
                                All other...................   11.0-11.8
------------------------------------------------------------------------

                           cleveland, oh, area

    Area covered--Ashland, Ashtabula, Crawford, Cuyahoga, Erie, Geauga, 
Huron, Lake, Lorain, Sandusky, and Seneca Counties, OH.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  Art glass workers...........   25.4-28.6
                                Asbestos workers............   20.9-23.9
                                Boilermakers................   16.3-18.9
                                Bricklayers.................   28.8-29.5
                                Carpenters..................     8.0-8.6
                                Cement masons...............   41.1-42.2
                                Electricians................   15.1-18.1
                                Elevator constructors.......   28.9-32.5
                                Glaziers....................   35.8-40.0
                                Ironworkers.................   11.4-13.2
                                Painters....................   17.7-18.4
                                Pipefitters.................   15.7-17.9
                                Plasterers..................   21.6-23.2
                                Plumbers....................   20.8-23.4
                                Roofers.....................   28.9-31.8
                                All other...................   17.0-18.8
------------------------------------------------------------------------

                            dayton, oh, area

    Area covered--Greene, Miami, Montgomery, and Preble Counties, OH.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   10.6-11.8
------------------------------------------------------------------------

                           detroit, mi., area

    Area covered--Wayne, Oakland, and Macomb Counties, MI.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  Electricians................   17.0-19.0
                                Operating engineers.........   16.9-18.0
                                Lathers.....................   18.6-19.6
                                Painters....................   15.0-17.7
                                Riggers.....................   16.8-17.7
                                Roofers.....................   15.3-16.6
                                Tile, terrazzo marble          15.0-17.8
                                 workers.
                                Tile and marble helpers.....   16.0-18.5
                                Terrazzo helpers............   17.8-19.5
                                All other...................   18.6-20.4
------------------------------------------------------------------------

                          evansville, in, area

    Area covered--Vanderburgh County, IN.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................     6.3-7.6
------------------------------------------------------------------------

                          fort wayne, in, area

    Area covered--Adams, Allen, DeKalb, Huntington, LaGrange, Noble, 
Steuben, Wells, and Whitley Counties, IN.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  Plumbers....................     5.2-5.5
                                Steamfitters................     5.2-5.5
                                Carpenters..................     5.7-5.2
                                Bricklayers.................    9.3-10.4
                                Electricians................     5.2-5.9
                                Sheetmetal workers..........     4.4-5.2
                                Ironworkers.................     7.3-8.4
                                Operating engineers.........     5.2-6.0
                                Painters....................   11.0-12.0
                                All other...................     7.1-8.0
------------------------------------------------------------------------

                         indianapolis, in, area

    Area covered--Marion County, IN.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  Asbestos workers............   32.2-37.7
                                Bricklayers.................   17.4-19.5
                                Electricians................     6.6-7.8
                                Elevator constructors.......   15.5-18.0
                                Glaziers....................   25.2-28.6
                                Ironworkers.................   11.6-14.0
                                Lathers.....................   21.1-22.0
                                Operating engineers.........     7.7-8.8
                                Painters....................   22.4-25.0

[[Page 36]]

 
                                Plasterers..................   27.5-30.4
                                Plumbers....................   25.5-30.0
                                Roofers.....................   15.9-18.1
                                Sheetmetal workers..........    9.3-10.9
                                Steamfitters................   14.9-17.1
                                All other...................   14.1-16.2
------------------------------------------------------------------------

                            peoria, il, area

    Area covered--Peoria, Fulton, Tazewell, Woodford, Knox, Stark, 
Marshall, Hancock, Mason, McLean, McDonough, Henderson, Warren, 
Livingston, Bureau, Henry, and Putnam Counties, IL.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................     5.0-6.0
------------------------------------------------------------------------

                           rockford, il, area

    Area covered--Boone, Winnebago, Stephenson, De Kalb, Ogle, Lee, and 
Jo Daviess Counties; Cherry Grove, Shannon, Rock Creek, Lima, Wysox, and 
Elkhorn Townships in Carroll County; Genesee, Jordan, Hopkins, Sterling, 
Hume, Montmorency, Tampico, and Hahnaman Townships in Whiteside County, 
IL.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   10.0-12.0
------------------------------------------------------------------------

                          south bend, in, area

    Area covered--St. Joseph, County, IN.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................    8.0-10.0
------------------------------------------------------------------------

                            toledo, oh, area

    Area covered--Defiance, Fulton, Hancock, Henry, Lusas, Ottawa, 
Williams, and Wood Counties, OH.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   10.7-12.3
------------------------------------------------------------------------

                           youngstown, oh area

    Area covered--Columbiana, Mahoning, and Trumbull Counties, OH; and 
Lawrence and Mercer Counties, PA.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................     6.0-7.1
------------------------------------------------------------------------

                                Region VI

                            el paso, tx, area

    Area covered--El Paso County, TX.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   55.1-66.2
------------------------------------------------------------------------

                            lawton, ok, area

    Area covered--Commanche County, OK.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   15.8-16.8
------------------------------------------------------------------------

                          little rock, ar, area

    Area covered--Pulaski County, AR.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   25.6-30.6
------------------------------------------------------------------------

                            new orleans, la.

    Area covered--Parishes of Orleans, Jefferson, St. Bernard, St. 
Tammany, St. Charles, St. John, Lafourche, Plaquemines, Washington, 
Terrebonne, Tangipahoa,\1\ Livingston,\2\ and St. James.\3\
---------------------------------------------------------------------------

    \1\ Area covered is east of the Illinois Central RR.
    \2\ Area covered is southeast of the line from a point off the 
Livingston and Tangipahoa Parish line adjacent from New Orleans and 
Baton Rouge.
    \3\ Area covered is southeast of a line drawn from the town of 
Gramercy to the point of intersection of St. James, Lafourche, and 
Assumption Parishes.

[[Page 37]]



                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................       20-23
------------------------------------------------------------------------

                                tulsa, ok

    Area covered--Tulsa, Creek, Mayes, Rogers, Okfuskee, Washington, 
Nowata, Craig, Ottawa, Delaware, Okmulgee (northern half), dividing line 
Highway 16; Osage (eastern half), dividing line Highway 18; Pawnee 
(eastern half), and Payne (eastern half) Counties, OK.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  Bricklayers.................   24.0-25.0
                                Carpenters..................   17.0-18.0
                                Cement masons...............   21.5-22.5
                                Floor covers................   12.0-14.0
                                Glaziers, glass workers.....   14.7-17.3
                                Operating engineers.........   22.0-24.0
                                Painters....................   18.0-20.0
                                Pipefitters.................   10.0-12.0
                                Plumbers....................   11.6-13.2
                                Roofers.....................   12.0-14.0
                                Sheetmetal workers..........    8.0-10.0
                                All other trades............   12.0-14.4
------------------------------------------------------------------------

                               Region VII

                        kansas city (ks) and (mo)

    Area covered--Clay, Platte, Jackson, Bates, Carroll, Lafayette, Ray, 
Johnson, Henry, and Cass Counties, Mo., and Wyandotte, Johnson, and 
Miami Counties, KS.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  Asbestos workers............   10.3-11.7
                                Boilermakers................     5.9-6.4
                                Bricklayers.................   19.4-20.7
                                Carpenters..................     5.9-6.9
                                Carpet, linoleum and             5.5-6.4
                                 resilient floor decorators.
                                Cement masons...............   25.5-26.5
                                Elevator constructors.......    9.2-10.7
                                Electricians................     8.0-9.4
                                Glaziers....................      9.8 to
                                                                    10.5
                                Lathers.....................   14.5-15.6
                                Marble masons, tile layers       7.5-9.0
                                 and terrazzo workers.
                                Marble and tile helpers.....     4.8-5.6
                                Operating engineers.........    9.0-10.9
                                Painters....................   14.3-15.0
                                Pipefitters.................     6.9-7.7
                                Plasterers..................   19.0-20.4
                                Plumbers....................     8.3-9.3
                                Roofers.....................   14.0-15.0
                                Sheetmetal workers..........     7.0-8.0
                                Teamsters...................   25.0-26.0
                                All other trades............   11.4-12.5
------------------------------------------------------------------------

                                omaha, ne

    Area covered--Sharpy and Douglas Counties, NE, Council Bluffs, IA 
(city limits only).

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................    9.0-10.0
------------------------------------------------------------------------

                              st. louis, mo

    Area covered--City of St. Louis, Mo., and St. Louis, MO.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  Asbestos workers............     5.2-5.7
                                Boilermakers................   34.0-37.7
                                Bricklayers.................   12.6-14.2
                                Carpenters..................     8.2-8.9
                                Cement and concrete            13.3-16.6
                                 finishers.
                                Electricians................   13.6-16.1
                                Elevator constructors.......     8.7-9.3
                                Glaziers....................   28.7-34.5
                                Ironworkers.................    9.0-10.4
                                Lathers and plasterers......   24.2-29.7
                                Operating engineers.........   13.2-15.7
                                Painters and paperhangers...   25.1-29.3
                                Plumbers and pipefitters....   13.2-15.4
                                Roofers and slaters.........   17.1-19.6
                                Sheetmetal workers..........   22.5-27.0
                                Tilesetters and terrazzo        8.8-10.4
                                 workers.
------------------------------------------------------------------------

                               topeka, ks

    Area covered--Shawnee County, KS.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................    8.8-10.5
------------------------------------------------------------------------

                               Region VIII

                                colorado

    Area covered--State of Colorado

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................       13-14
------------------------------------------------------------------------

                                Region IX

                        alameda county, ca, area

    Area covered--Alameda County, CA.

[[Page 38]]



                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   28.5-33.0
------------------------------------------------------------------------

                                 arizona

    Area covered--State of Arizona.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   25.0-30.0
------------------------------------------------------------------------

                         contra costa county, ca

    Area covered: Contra Costa County, CA.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   17.0-19.5
------------------------------------------------------------------------

                            fresno county, ca

    Area covered. Fresno, Madera, Kings, and Tulare Counties, CA.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   20.0-27.0
------------------------------------------------------------------------

                              las vegas, nv

    Area covered. Area of jurisdiction of the Building & Construction 
Trades Council of Clark, Lincoln, Nye and Esmeralda Counties, NV.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  Asbestos workers............   17.7-20.2
                                Bricklayers.................   18.8-21.3
                                Carpenters..................   16.2-17.5
                                Glaziers, floorcoverers,       16.3-17.7
                                 painters, tapers and
                                 wallcoverers.
                                Plasterers..................   24.6-27.2
                                Plumbers and pipefitters....   15.2-16.2
                                Sheet metal workers.........   16.2-17.7
                                Wood, wire and metal lathers   18.1-19.3
                                All other trades............   18.0-19.5
------------------------------------------------------------------------

                         los angeles county, ca

    Area covered. Area of jurisdiction of the Los Angeles Building & 
Construction Trades Council.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   21.7-25.1
------------------------------------------------------------------------

                              monterey, ca

    Area covered. Monterey County, CA, and within the jurisdiction of 
the Monterey County Building & Construction Trades Council, AFL-CIO.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   27.0-29.8
------------------------------------------------------------------------

                              north bay, ca

    Area covered. Solano, Napa, Lake, Marin, Mendocino, and Sonoma 
Counties.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   10.5-12.6
------------------------------------------------------------------------

                             sacramento, ca

    Area covered. Sacramento, Yolo, Amador, Placer, El Dorado, Nevada, 
and Sierra Counties, CA.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   17.5-20.0
------------------------------------------------------------------------

                          san diego county, ca

    Area covered. San Diego County, CA.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   24.0-30.0
------------------------------------------------------------------------

                    san francisco city and county, ca

    Area covered. City and County of San Francisco, CA.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  Electricians................        17.0
                                Plumbers, pipefitters and           14.0
                                 steamfitters.

[[Page 39]]

 
                                Structural metal workers....        20.0
                                Sheet metal workers.........        19.0
                                Asbestos workers............        40.0
------------------------------------------------------------------------

                          san mateo county, ca

    Area covered. San Mateo County, CA.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   12.0-14.0
------------------------------------------------------------------------

                         santa clara county, ca

    Area covered. Santa Clara County, CA.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   18.0-21.7
------------------------------------------------------------------------

                          santa cruz county, ca

    Area covered. Santa Cruz County, CA.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   17.0-20.4
------------------------------------------------------------------------

                                Region X

                                 alaska

    Area covered. State of Alaska.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  Asbestos workers............   26.4-28.0
                                Carpenters..................   25.7-28.0
                                Electricians................   25.7-28.0
                                Ironworkers.................   25.7-28.0
                                Operating engineers.........   26.1-28.0
                                Painters....................   25.8-28.0
                                Pile drivers................   25.1-28.0
                                Plumbers and steamfitters...   25.4-28.0
                                Roofers.....................   27.6-28.0
                                Sheetmetal workers..........   25.6-28.0
                                Teamsters...................   25.6-28.0
                                All other...................   26.1-28.1
------------------------------------------------------------------------

                                pasco, wa

    Area covered. The area of jurisdiction of the Southeastern 
Washington Building & Construction Trades Council as follows: all of 
Benton, Franklin, and Walla Walla Counties, Grant County to Highway 2 
and the southwest corner of Adams County, WA.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  Boilermakers................   12.5-15.0
                                Bricklayers.................   11.0-13.5
                                Carpenters..................    9.8-12.3
                                Cement finishers............   11.5-14.0
                                Electricians................   10.0-12.5
                                Ironworkers.................   10.0-12.5
                                Operating engineers.........   10.2-12.7
                                Painters....................   10.0-12.5
                                Plumbers and fitters........     .9-12.4
                                Sheetmetal workers..........   10.8-13.3
                                Laborers....................    9.5-13.3
                                All other...................   10.0-12.5
------------------------------------------------------------------------

                              portland, or

    Area covered--Multnomah, Clackamas, and Washington Counties, OR.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................     5.5-6.5
------------------------------------------------------------------------

                               seattle, wa

    Area covered--King County, WA.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................    8.8-11.5
------------------------------------------------------------------------

                               spokane, wa

    Area covered--Washington Counties: Spokane, Whitman, Lincoln, Adams, 
Stevens, Pend Oreille, Columbia, Garfield, Asotin, Ferry, Okanogan, 
Chelan, Douglas and Grant (north of Highway 2), and in connection with 
Indian employment, parts of any other counties included in reservations 
incorporating portions of the above area; Idaho: Boundary, Bonner, 
Kootenai, Shoshone, Benewah, Latah, Clearwater, Nez Perce, Lewis, and 
Idaho, and in connection with Indian employment, any other territory 
included in reservations, part of which are in the above counties.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................       (\1\)
------------------------------------------------------------------------
\1\ 2.0 and above.


[[Page 40]]

                               tacoma, wa

    Area covered--Pierce, Thurston, Mason, Lewis, Grays Harbor, and 
Pacific Counties, WA.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   12.2-15.0
------------------------------------------------------------------------


[43 FR 58357, Dec. 14, 1978]

Exhibit E to Subpart E of Part 1901--List of Regional Offices, Office of 
 Federal Contract Compliance Programs (OFCCP), U.S. Department of Labor 
                                 (USDL)

Region I (ME, NH, VT, MA, RI, CT)
    Associate Regional Administrator, USDL/OFCCP, JFK Building, Room 
1612-C, Government Center, Boston, MA 12203, (617) 223-4232.

Region II (NY, NJ, PR, VI)
    Associate Regional Administrator, USDL/OFCCP, 1515 Broadway, Room 
3306, New York, NY 10036, (212) 662-5563.

Region III (PA, MD, DE, VA, WV, DC)
    Associate Regional Administrator, USDL/OFCCP, Gateway Building, Room 
15434, 3535 Market Street, Philadelphia, PA 19104, (215) 596-1213.

Region IV (NC, SC, KY, TN, MS, AL, GA, FL)
    Associate Regional Administrator, USDL/OFCCP, 1371 Peachtree Street, 
NE, Room 729, Atlanta, GA 30309, (402) 881-4211).

Region V (OH, IN, MI, IL, WI, MN)
    Associate Regional Administrator, USDL/OFCCP, New Federal Building, 
16th Floor, 2340 South Dearborn Street, Chicago, IL 60604, (312) 353-
8887.

Region VI (LA, AR, OK, TX, NM)
    Associate Regional Administrator, USDL/OFCCP), 555 Griffin Square 
Building, Room 506, Dallas, TX 75202, (214) 767-4771.

Region VII (MO, IA, NE, KS)
    Associate Regional Administrator, USDL/OFCCP Regional Administrator, 
Federal Office Building, Room 2000, 911 Walnut Street, Kansas City, MO 
64106, (816) 374-5384.

Region VIII (ND, SD, MT, WY, CO, UT)
    Associate Regional Administrator, USDL/OFCCP, 14431 Federal Office 
Building, 1961 Stout Street, Denver, CO 80202, (303) 837-5011.

Region IX (CA, NV, AZ, HI, GU)
    Associate Regional Administrator, USDL/OFCCP, Federal Office 
Building, Room 10341, 450 Golden Gate, San Francisco, CA 94102, (415) 
556-3597.

Region X (WA, OR, ID)
    Associate Regional Administrator, USDL/OFCCP, Federal Office 
Building, 909 First Avenue, Room 4095, Seattle, WA 98174, (206) 442-
4508.

[44 FR 24852, Apr. 27, 1979]



Subpart F_Procedures for the Protection of Historical and Archeological 
                               Properties

    Authority: 16 U.S.C. 470; 7 U.S.C. 1989; 42 U.S.C. 1480; 42 U.S.C. 
2942; 5 U.S.C. 301; sec. 10, Pub. L. 93-357, 88 Stat. 392; delegation of 
authority by Sec. of Agri., 7 CFR 2.23; delegation of authority by the 
Asst. Sec. for Rural Development, 7 CFR 2.70; delegations of authority 
by Dir., OEO, 29 FR 14764, 33 FR 9850.

    Source: 42 FR 62141, Dec. 9, 1977, unless otherwise noted.



Sec.  1901.251  Purpose.

    This subpart prescribes Farmers Home Administration (FmHA) or its 
successor agency under Public Law 103-354 policies, procedures, and 
guidelines for compliance with section 106 of the National Historic 
Preservation Act of 1966 (Pub. L. 89-665), the Reservoir Salvage Act of 
1960 (Pub. L. 86-523), as amended May 24, 1974, by the Archeologic and 
Historic Preservation Act (Pub. L. 93-291), and section 1(3) of 
Executive Order 11593.



Sec.  1901.252  Policy.

    (a) The FmHA or its successor agency under Public Law 103-354 
recognizes that significant scientific, prehistorical, historical and 
archeological (HA) resources are an important part of our National 
Heritage.
    (b) The FmHA or its successor agency under Public Law 103-354 will 
consult with appropriate Federal, State, and local Agencies; other 
organizations; the State Historic Preservation Officer (SHPO) and 
individuals to assess the impact of any proposed FmHA or its successor 
agency under Public Law 103-354 undertaking on properties having 
historical or archeological significance in order to avoid or mitigate 
any adverse effects on the properties.
    (c) The procedures in this subpart have been developed in accordance 
with section 1(3) of Executive Order 111593.

[[Page 41]]



Sec.  1901.253  Definitions.

    (a) Undertaking means any new or continuing projects or program 
activities supported in whole or in part through FmHA or its successor 
agency under Public Law 103-354 contracts, grants, subsidies, loans, or 
other forms of funding assistance. This does not include any actual 
construction by FmHA or its successor agency under Public Law 103-354.
    (b) National Historic Preservation Act. The National Register means 
the National Register of Historic Places, which is a register of 
districts, sites, buildings, structures, and objects, significant in 
American history, architecture, archeology, and culture maintained by 
the Secretary of the Interior under the authority of section 2(b) of the 
Historic Sites Act of 1935 and section 101(a)(1) of the National 
Preservation Act. The National Register is published in its entirety in 
the Federal Register each year in February. Addenda are published on the 
first Tuesday of each month.
    (c) National Register Property means a district, site, building, 
structure, or object included in the National Register.
    (d) Property eligible for inclusion in the National Register means 
any district, site, building, structure, or object which the Secretary 
of the Interior determines is likely to meet the National Register 
criteria.
    (e) State Historic Preservation Officer (SHPO) means the official 
within each State, designated by the Governor at the request of the 
Secretary of the Interior, to administer the National Register and 
historic preservation grants program and to coordinate preservation 
planning within the State.
    (f) Criteria of effect means when any condition of an undertaking 
causes or may cause any change, beneficial or adverse, in the 
scientific, historical, architectural, archeological, or cultural 
character of a National Register property that qualifies the property 
under the National Register criteria.
    (g) Historical and archeological assessment means a determination by 
the FmHA or its successor agency under Public Law 103-354 State Director 
using the criteria of effect as a guide, as to whether a proposed 
undertaking may have an effect upon any properties located within the 
project area which are included or eligible for inclusion in the 
National Register.
    (h) National Register criteria means the following criteria 
established by the Secretary of the Interior for use in evaluating and 
determining the eligibility of properties for listing in the National 
Register: The quality of significance in American History, Architecture, 
Archeology, and the culture is present in districts, sites, buildings, 
structures, and objects of State and local importance, that possess 
integrity of location, design, setting, materials, workmanship, feeling, 
and association; and
    (1) That are associated with events that have made a significant 
contribution to the broad patterns of our history; or
    (2) That are associated with the lives of persons significant in our 
past; or
    (3) That embody the distinctive characteristics of a type, period, 
or method of construction, or that represent the work of a master, or 
that possess high artistic values, or that represent a significant and 
distinguishable entity whose components may lack individual distinction; 
or
    (4) That have yielded, or may be likely to yield, information 
important in prehistory or history.
    (i) FmHA or its successor agency under Public Law 103-354 official 
means the FmHA or its successor agency under Public Law 103-354 County 
Supervisor, the FmHA or its successor agency under Public Law 103-354 
State Director or his designated representative.
    (j) Project area means those geographical or legally defined areas 
directly under or to be under the applicants control that are affected 
by the undertaking such as building sites, easements, rights-of-way, 
leasehold interests and those areas which are directly and significantly 
impacted by the undertaking.
    (k) Advisory council means the Advisory Council on Historic 
Preservation, Suite 430, 1522 K Street NW., Washington, DC 20005, 
created by title II of Pub. L. 89-665 and charged with the 
responsibility of advising the President, Congress, and others on 
matters relating to historic preservation.

[[Page 42]]

    (l) HA as used in this regulation is an abbreviation of the term 
``scientific, prehistorical, historical, and archeological.''



Sec.  1901.254  Scope.

    FmHA or its successor agency under Public Law 103-354 will evaluate 
all undertakings for possible HA significance. This subpart covers the 
following types of undertakings:
    (a) Undertakings requiring a historical and archeological 
assessment. Although the following undertakings are presumed to involve 
nonfederally owned lands, they may have an effect on properties having 
HA significance and, therefore, will require a historical and 
archeological assessment:
    (1) Loans and grants for the development of business and industry 
including guaranteed loans.
    (2) Loans and grants for multiple family housing projects of 25 or 
more dwelling units.
    (3) Subdivision plans submitted for approval having 25 or more 
building sites.
    (4) Loans and grants in rural areas to construct, enlarge, extend, 
or otherwise improve:
    (i) Community water, sanitary sewage, solid waste disposal, and 
storm waste water disposal systems.
    (ii) Other essential community facilities such as fire and rescue, 
health, safety, public buildings, schools, transportation, traffic, and 
law enforcement.
    (5) Loans to develop community irrigation, drainage, and other soil 
and water conservation and use facilities.
    (6) Loans to acquire and develop grazing land for livestock of an 
association of members.
    (7) Loans in areas designated by the Soil Conservation Service 
(SCS), U.S. Department of Agriculture (USDA), to conserve and develop 
natural resources and to contribute to economic improvement of the area.
    (8) Loans to protect and develop land and water resources in small 
watersheds.
    (9) Loans to permit Indian tribes to buy land within their 
reservations.
    (b) Undertakings presumed not to require a historical and 
archeological assessment. The following undertakings are generally 
presumed to involve nonfederally owned lands and not to have an effect 
on properties of historical and archeological value and will therefore 
not usually require a historical and archeological assessment. However, 
when the State Director or County Supervisor finds or has had 
communication or obtains information from a recognized historical and 
archeological authority that a specific undertaking may have an effect 
on a property included or eligible for inclusion in the National 
Register, a historical and archeological assessment will be made.
    (1) Loans to farmers and ranchers in rural areas for the purchase, 
development, and operation of farms and ranches.
    (2) Loans to individual families in rural areas for the purchase, 
construction, or improvement of single family residences.
    (3) Loans and grants for multiple family housing projects of not 
more than 24 family dwelling units.
    (4) Subdivision plans submitted for approval having 24 or less 
building sites.
    (5) Loans to farmers, ranchers, and other rural residents to develop 
land, water, and other related resources for increased production of 
food and other crops, improved pastures, feed crops, water facilities 
for livestock, and improved habitats for fish and wildlife.
    (6) Emergency and disaster loans to farmers, ranchers and other 
rural residents in declared or designated areas as a result of a major 
or national disaster.



Sec.  1901.255  Historical and archeological assessments.

    (a) The FmHA or its successor agency under Public Law 103-354 
official, normally the FmHA or its successor agency under Public Law 
103-354 County Supervisor, who receives a preapplication or application 
for loan or grant assistance on an undertaking that may have an effect 
on HA properties will, as part of the process, take the following 
actions:
    (1) Carefully review the State supplements issued by the State 
Director pursuant to Sec.  1901.262(a) to determine whether there are 
any properties within the project area that appear in the National 
Register.

[[Page 43]]

    (2) Document the following:
    (i) A brief narrative report of the findings and conclusions of an 
on-site reconnaissance of the project area.
    (ii) Any ``in-house'' knowledge of known or suspected HA sites in 
the project area.
    (3) Submit the information outlined in paragraph (a)(2) of this 
section to the FmHA or its successor agency under Public Law 103-354 
State Director as part of the preapplication or application.
    (b) Upon receipt of the preapplication/application the FmHA or its 
successor agency under Public Law 103-354 State Director will, as a 
concurrent part of the preapplication/application review, prepare a 
historical and archeological assessment of the undertaking. In making 
the assessment the State Director will consider information from the 
following sources:
    (1) State and Regional Clearinghouse comments.
    (2) Information submitted by the County Supervisor pursuant to 
paragraph (a)(2) of this section.
    (3) Factual comments or recommendations of the SHPO or other 
responsible Federal, State, or local officials.
    (4) Any other reliable information concerning properties in the 
project area having HA significance.
    (c) Upon completion of the preapplication or application review, the 
State Director will take the following actions:
    (1) When his assessment indicates that no properties of HA 
significance will be effected by the proposed undertaking, he will 
proceed with processing of the preapplication or application.
    (2) When his assessment indicates that there are properties included 
in the National Register that may be effected by the proposed 
undertaking, he will in consultation with the SHPO, the applicant and 
its representatives, and other appropriate historical and archeological 
authorities plan appropriate measures to avoid or mitigate any adverse 
effects. He will also notify the Advisory Council and Secretary of the 
Interior of the proposed undertaking, and of its possible effect on the 
National Register properties and provide them with a copy of the 
proposed plan in order to afford them a reasonable opportunity for 
comment. Comments that are received with 45 calendar days of 
notification in accordance with the requirements for comment as outlined 
in section 106 of the National Historic Preservation Act of 1966, will 
be considered in further development of the undertaking.
    (3) When his assessment indicates that there are properties thay may 
be eligible for inclusion in the National Register, based on his 
application of the National Register criteria, he will request the 
Regional Director of the National Park Service, U.S. Department of the 
Interior, Attention: Interagency Archeological Services, in writing, to 
cause a survey of the project area to be made to determine the 
significance of the properties in accordance with section 3(b) of Pub. 
L. 93-291. The State Director's letter to the Regional Director should 
request a response within 45 calendar days as to whether the National 
Park Service intends to cause a survey to be made, declines to undertake 
a survey, or that a survey is not warranted based on available data. The 
addresses of the Regional Offices of the National Park Service are 
listed in exhibit A of this subpart. If no response is received within 
the 45-day period, the State Director will proceed as outlined in 
paragraph (c)(7) of this section.
    (4) The State Director will cooperate fully with the National Park 
Service in the conduct of a survey should one be undertaken to assure 
that:
    (i) The professional archeologist/historian conducting the survey 
provides his written opinion as to the eligibility of any identified 
properties for inclusion in the National Register.
    (ii) When the professional archeologist/historian recommends 
recovery, protection, or preservation of identified properties, the 
National Park Service is requested to undertake this project.
    (5) When the survey made in paragraph (c)(3) of this section does 
not identify any historical and archeological properties that may be 
eligible for inclusion in the National Register, or the National Park 
Service is not going to undertake activity pursuant to paragraph 
(c)(4)(ii) of this section,

[[Page 44]]

the State Director, after consultation with the SHPO and the National 
Park Service, will document the findings and proceed with processing of 
the application.
    (6) When the survey identifies properties that may be eligible for 
inclusion in the National Register, the State Director will request the 
SHPO to proceed with the nomination of such properties. The State 
Director will then proceed as outlined in paragraph (c)(2) of this 
section for any properties accepted for inclusion in the National 
Register.
    (7) When the National Park Service declines to cause a survey to be 
made or determines that one is not warranted, the State Director will 
document such facts and proceed with processing of the application.



Sec. Sec.  1901.256-1901.258  [Reserved]



Sec.  1901.259  Actions to be taken when archeological properties are 
discovered during construction.

    (a) When properties of significant HA value are discovered during 
construction, the State Director will immediately consult with the 
applicant, the SHPO and the Regional Director of the National Park 
Service to determine whether there is sufficient factual evidence to 
warrant a decision to stop construction and undertake detailed survey 
and recovery.
    (b) When the consultations in paragraph (a) of this section result 
in a determination by the National Park Service to request the applicant 
to stop construction, such stop action should be taken so that the Park 
Service can initiate measures for immediate recovery within 60 days 
after notification of a discovery.
    (c) When the consultations in paragraph (a) of this section do not 
result in a determination by the National Park Service to stop 
construction and to undertake a survey and recovery, construction should 
be permitted to proceed with caution. In the event that the National 
Park Service determines that recovery is necessary, the FmHA or its 
successor agency under Public Law 103-354 applicant/borrower and the 
Park Service should determine that the consent of all persons, 
associations, or public entities having legal interests in the property 
involved has been secured. Also, the applicant should be informed that 
the Secretary of the Interior is authorized to compensate any person, 
association, or public entity damaged as a result of delay in 
construction or as a result of the temporary loss of the use of public 
or any nonfederally owned land.
    (d) No survey or recovery work will be required which in the 
determination of the State Director would seriously impede FmHA or its 
successor agency under Public Law 103-354 actions in providing 
assistance where the State Director determines that immediate action is 
required to avoid loss or damage of life or property. Nevertheless, 
appropriate measures will be taken to the extent practical to preserve, 
protect, or mitigate any damage to properties having HA significance.



Sec.  1901.260  Coordination with other agencies.

    (a) When other Agencies are directly involved in any undertaking 
that requires a historical and archeological assessment, the State 
Director will contact the Agencies concerned to determine if a joint 
assessment will be prepared and whether a single lead Agency will assume 
primary responsibility for preparing the assessment.
    (b) When a lead Agency is agreed upon other than FmHA or its 
successor agency under Public Law 103-354, FmHA or its successor agency 
under Public Law 103-354 will provide that Agency with information about 
its respective areas of responsibility. Assessments will indicate Agency 
participation and concurrence.
    (c) When FmHA or its successor agency under Public Law 103-354 
program activities are planned that primarily supplement those of the 
SCS, USDA, such as watershed projects, resource conservation and 
development measures, and irrigation and drainage projects, the SCS will 
be designated as the lead Agency.



Sec.  1901.261  [Reserved]



Sec.  1901.262  State supplement.

    (a) The State Director shall be responsible for preparing a list of 
all properties included in the National

[[Page 45]]

Register in his area of jurisdiction and issuing such list as a part of 
a State supplement. Such a list will be updated as needed to reflect 
changes in the National Register.
    (b) State Directors may also supplement this subpart and its exhibit 
as appropriate to meet State and local laws and regulations.

    Exhibit A to Subpart F of Part 1901--National Park Service, U.S. 
               Department of the Interior Regional Offices

    Contact should be made to: Chief, Interagency Archeological Services 
Division, Office of Archeological and Historic Preservation, National 
Park Service.
    The three Regional Offices are:

San Francisco Office: Old Post Office Building, Mission and 7th Streets, 
Post Office Box 5700, San Francisco, Calif. 94104.
    States covered: Arizona, Utah, Idaho, and West, including Hawaii and 
Alaska. Attention: Mr. Garland Gordon. Telephone: 415-556-7711.
Denver Office: 1978 South Garrison Street, Denver, Colo. 80225.
    States covered: Wisconsin, Iowa, Missouri, Oklahoma, Texas and West 
to San Francisco area. Attention: Mr. Jack R. Rudy. Telephone: 303-234-
2560.
Atlanta Office: 730 Peachtree Street, Atlanta, Ga. 30308.
    States covered: All others East of Denver area. Attention: Mr. 
Wilford Susted. Telephone: 404-526-2611.



                         Subparts G	J [Reserved]



    Subpart K_Certificates of Beneficial Ownership and Insured Notes

    Authority: 7 U.S.C. 1989; 42 U.S.C. 1480; delegation of authority by 
the Secretary of Agriculture, 7 CFR 2.23; delegation of authority by the 
Assistant Secretary for Rural Development, 7 CFR 2.70.

    Source: 41 FR 51799, Nov. 24, 1976, unless otherwise noted.



Sec.  1901.501  Purpose.

    This subpart prescribes policies and procedures for Farmers Home 
Administration (FmHA) or its successor agency under Public Law 103-354 
certificates of beneficial ownership and insured notes.



Sec.  1901.502  Policy.

    It is the current policy to sell all certificates of beneficial 
ownership to the Federal Financing Bank for financing activities from 
the Agricultural Credit Insurance Fund and the Rural Development 
Insurance Fund. Sales from the Rural Housing Insurance Fund will be made 
to the Federal Financing Bank to the extent necessary to service 
certificates of beneficial ownership held by the Federal Financing Bank. 
Sales in excess of those needed for servicing requirements will be made 
to the public. In addition to sales, this subpart provides policy for 
the servicing of outstanding certificates of beneficial ownership, 
insurance contracts, and insured notes held by investors.

[51 FR 24301, July 3, 1986]



Sec.  1901.503  Definitions.

    (a) As used in Sec. Sec.  1901.505, 1901.507, 1901.508 and 1901.509 
the following definitions will apply:
    (1) Announcement of sale. Any notice of terms and conditions 
respecting a sale of certificates.
    (2) Certificate. A certificate of beneficial ownership issued by 
Farmers Home Administration (FmHA) or its successor agency under Public 
Law 103-354 under this subpart.
    (3) Director, Finance Office. The Director or the Insured Loan 
Officer of the Finance Office of FmHA or its successor agency under 
Public Law 103-354.
    (4) FmHA or its successor agency under Public Law 103-354. The 
United States acting through the Farmers Home Administration or its 
successor agency under Public Law 103-354.
    (5) Finance Office. The office which maintains the FmHA or its 
successor agency under Public Law 103-354 finance records. It is located 
at 1520 Market Street, St. Louis, Missouri 63103. (Phone: 314-425-4400)
    (6) Fixed period. Any time interval (preceding an option period) 
during which the insured holder is not entitled to require FmHA or its 
successor agency under Public Law 103-354 to purchase the insured note, 
as specified in the insurance agreement.
    (7) Insurance agreement. The entire contract evidencing and setting 
forth

[[Page 46]]

the terms and conditions of FmHA or its successor agency under Public 
Law 103-354 insurance of the payment for the insured note. The insurance 
agreement with respect to any particular loan may be evidenced by Form 
FmHA or its successor agency under Public Law 103-354 440-5, ``Insurance 
Endorsement (Insured Loan),'' FmHA or its successor agency under Public 
Law 103-354 440-30, ``Insurance Endorsement (Insured Loans),'' or any 
other form or forms prescribed by the National Office and executed by an 
authorized official of FmHA or its successor agency under Public Law 
103-354. It may include such provisions as, for example, an agreement of 
FmHA or its successor agency under Public Law 103-354 to purchase or 
repurchase the loan, or to make supplementary payments from the 
insurance fund.
    (8) Insurance fund. The Agricultural Credit Insurance Fund 
authorized by section 309 of the Consolidated Farm and Rural Development 
Act, the Rural Development Insurance Fund authorized by section 309A of 
the Consolidated Farm and Rural Development Act, or the Rural Housing 
Insurance Fund authorized by section 517 of title V of the Housing Act 
of 1949.
    (9) Insured holder. The current owner of an insured note other than 
FmHA or its successor agency under Public Law 103-354, according to the 
records of FmHA or its successor agency under Public Law 103-354 is 
insurer of the note.
    (10) Insured note. Any promissory note or bond evidencing an insured 
loan regardless of whether it is held by FmHA or its successor agency 
under Public Law 103-354 in the insurance fund, by a private holder, or 
by FmHA or its successor agency under Public Law 103-354 as trustee.
    (11) Loan. Loans made and held in the Agricultural Credit Insurance 
Fund, Rural Development Insurance Fund, or the Rural Housing Insurance 
Fund.
    (12) National Office. The Administrator or other authorized officer 
of the FmHA or its successor agency under Public Law 103-354 in 
Washington, DC.
    (13) Option period. Any period during which the insured holder has 
the optional right to require the FmHA or its successor agency under 
Public Law 103-354 to purchase the insured note, as specified in the 
insurance agreement.
    (14) Par value. The total amount to which the insured holder is 
entitled under the terms of the insurance agreement.
    (15) Private buyer. A buyer of an insured note other than FmHA or 
its successor agency under Public Law 103-354.
    (16) Private holder. An insured holder other than FmHA or its 
successor agency under Public Law 103-354.
    (17) Repurchase agreement. A provision in the insurance agreement 
obligating FmHA or its successor agency under Public Law 103-354 to buy 
the insured note at the option of the holders.
    (18) Sale, or seller, and buyer. The transfer of ownership 
(including possession or the right of possession), the transferor, and 
the transferee respectively.
    (19) State Director. The State Director of FmHA or its successor 
agency under Public Law 103-354 for the State in which is located the 
real estate improved, purchased, or refinanced with the loan evidenced 
by the insured note.
    (b) As used in Sec.  1901.506 the following definitions will apply:
    (1) Reserve bank. The Federal Reserve Bank of New York (and any 
other Federal Reserve Bank which agrees to issue securities in book-
entry form) as fiscal agent of the United States acting on behalf of 
FmHA or its successor agency under Public Law 103-354 and, when 
indicated, acting in its individual capacity.
    (2) FmHA or its successor agency under Public Law 103-354 security. 
A certificate representing beneficial ownership of notes, bonds, 
debentures, or other similar obligations held by FmHA or its successor 
agency under Public Law 103-354 under the Consolidated Farm and Rural 
Development Act and title V of the Housing Act of 1949, issued in the 
form of a definitive FmHA or its successor agency under Public Law 103-
354 security or a book-entry FmHA or its successor agency under Public 
Law 103-354 security.
    (3) Definitive FmHA or its successor agency under Public Law 103-354 
security. An FmHA or its successor agency under Public Law 103-354 
security in engraved on printed form.

[[Page 47]]

    (4) Book-entry FmHA or its successor agency under Public Law 103-354 
security. An FmHA or its successor agency under Public Law 103-354 
security in the form of an entry made as prescribed in this subpart on 
the records of a Reserve bank.
    (5) Pledge. A pledge of, or any other security interest in, FmHA or 
its successor agency under Public Law 103-354 securities as collateral 
for loans or advances, or to secure deposits of public moneys or the 
performance of an obligation.
    (6) Date of call. The date fixed in the official notice of call 
published in the Federal Register on which FmHA or its successor agency 
under Public Law 103-354 will make payment of the security before 
maturity in accordance with its terms.
    (7) Member bank. Any national bank, state bank, or bank or trust 
company which is a member of a Reserve bank.



Sec.  1901.504  Authorities and responsibilities.

    The Administrator will approve all methods of FmHA or its successor 
agency under Public Law 103-354 financing and major changes in existing 
methods. The Director, Finance Office, is responsible for servicing of 
all certificates of beneficial ownership and insured notes issued by the 
Finance Office, the Federal Reserve Bank of New York for the servicing 
of insurance contracts, and the Federal Reserve banks for certificates 
of beneficial ownership for which the Reserve banks are FmHA or its 
successor agency under Public Law 103-354's fiscal agents.



Sec.  1901.505  Certificates of beneficial ownership in FmHA or its 
successor agency under Public Law 103-354 loans.

    (a) Special trust of loans--(1) Establishment of special trusts. 
From time to time FmHA or its successor agency under Public Law 103-354 
will place in special trusts unmature loans evidenced by notes or other 
instruments. Loans may be placed into or removed from a special trust, 
but there will always be maintained in such trusts loans on which the 
unpaid amount is at least equal to the face value of the outstanding 
unmature certificates evidencing beneficial ownership in such special 
trust as provided in paragraph (a)(2) of this section.
    (2) Beneficial ownership of special trusts. To permit interested 
persons to acquire a beneficial ownership of loans comprising a special 
trust established under paragraph (a)(1) of this section, FmHA or its 
successor agency under Public Law 103-354 will sell certificates which 
will evidence beneficial ownership of an interest in the special trust 
to the extent of the face value of such certificates. FmHA or its 
successor agency under Public Law 103-354 will own an interest in 
special trusts equal to the amount by which the unpaid principal amount 
of loans comprising the trusts exceeds the face value of all outstanding 
certificates evidencing beneficial ownership in such trusts.
    (b) Sale of certificates. FmHA or its successor agency under Public 
Law 103-354 will offer certificates for sale from time to time on such 
terms and conditions it may deem appropriate. Sales made by the Finance 
Office shall be made by its Director. No sale in excess of $1 million 
will be made to any one investor without prior approval of the Associate 
Administrator or his designee. The terms and limitations of sales are 
subject to change from time to time, and may be obtained from the 
Finance Office.
    (1) Form of certificates. The certificates may be interest-bearing 
or non-interest-bearing. The certificates may be made payable to the 
bearer or registered holder thereof, and will be negotiable. The 
certificates will be issued in denominations specified in the 
invitations for bid or other announcement of sale.
    (2) Issue date and maturity date of certificates. The certificates 
will be issued on such dates and mature on such dates as specified in 
the invitation for bids or other announcement of sale. Such dates will 
appear on the face of the certificates.



Sec.  1901.506  Book-entry procedure for FmHA or its successor agency 

under Public Law 103-354 securities--issuance and redemption of certificate 
by Reserve bank.

    (a) Authority of Reserve bank. Each Reserve bank is hereby 
authorized in

[[Page 48]]

accordance with the provisions of this subpart to:
    (1) Issue book-entry FmHA or its successor agency under Public Law 
103-354 securities by means of entries on its records which shall 
include the name of the depositor, the amount, the securities title (or 
series) and maturity date.
    (2) Effect conversions between book-entry FmHA or its successor 
agency under Public Law 103-354 securities and definitive FmHA or its 
successor agency under Public Law 103-354 securities.
    (3) Otherwise service and maintain book-entry FmHA or its successor 
agency under Public Law 103-354 securities.
    (4) Issue a confirmation of transaction in the form of a written 
advice (serially numbered or otherwise) which specifies the amount and 
description of any securities (that is, the securities title (or series) 
and the maturity date) sold or transferred and the date of the 
transaction.
    (b) Scope and effect of book-entry procedure. (1) A Reserve bank as 
fiscal agent of the United States acting on behalf of FmHA or its 
successor agency under Public Law 103-354 may apply the book-entry 
procedure provided for in this subpart to any FmHA or its successor 
agency under Public Law 103-354 securities which have been or are 
hereafter deposited for any purpose in accounts with it in its 
individual capacity under terms and conditions which indicate that the 
Reserve bank will continue to maintain such deposit accounts in its 
individual capacity, notwithstanding application of the book-entry 
procedure to such securities. This paragraph shall be applicable but not 
limited to FmHA or its successor agency under Public Law 103-354 
securities deposited:
    (i) As collateral pledged to a Reserve bank (in its individual 
capacity) for advances by it.
    (ii) By a member bank for its sole account.
    (iii) By a member bank held for the account of its customers.
    (iv) In connection with deposits in a member bank of funds of 
States, Municipalities, or other political subdivisions.
    (v) In connection with the performance of an obligation or duty 
under Federal, State, Municipal, or local law, or judgments or decrees 
of courts.
    (2) The application of the book-entry procedure under paragraph 
(b)(1) of this section shall not detract from or adversely affect the 
relationships that would otherwise exist between a Reserve bank in its 
individual capacity and its depositors concerning any deposit under this 
paragraph. Whenever the book-entry procedure is applied to such FmHA or 
its successor agency under Public Law 103-354 securities, the Reserve 
bank is authorized to take all action necessary in respect of the book-
entry procedure to enable such Reserve bank in its individual capacity 
to perform its obligation as depositary with respect to such FmHA or its 
successor agency under Public Law 103-354 securities.
    (3) A Reserve bank as fiscal agent of the United States acting on 
behalf of FmHA or its successor agency under Public Law 103-354 may 
apply the book-entry procedure to FmHA or its successor agency under 
Public Law 103-354 securities deposited as collateral pledged to the 
United States under Treasury Department Circular Nos. 92 and 176, both 
as revised and amended, and may apply the book-entry procedure, with the 
approval of the Secretary of the Treasury, to any other FmHA or its 
successor agency under Public Law 103-354 securities deposited with a 
Reserve bank as fiscal agent of the United States.
    (4) Any person having an interest in FmHA or its successor agency 
under Public Law 103-354 securities which are deposited with a Reserve 
bank (in either its individual capacity or as fiscal agent of the United 
States) for any purpose shall be deemed to have consented to their 
conversion to book-entry FmHA or its successor agency under Public Law 
103-354 securities pursuant to the provisions of this subpart and in the 
manner and under the procedure prescribed by the Reserve bank.
    (5) No deposits shall be accepted under this section on or after the 
date of maturity or call of FmHA or its successor agency under Public 
Law 103-354 securities.

[[Page 49]]

    (c) Transfer or pledge. (1) A transfer or pledge of book-entry FmHA 
or its successor agency under Public Law 103-354 securities to a Reserve 
bank (in its individual capacity or as fiscal agent of the United 
States), or to the United States, or to any transferee or pledgee 
eligible to maintain an appropriate book-entry account in its name with 
a Reserve bank under this subpart is effected and perfected, 
notwithstanding any provision of law to the contrary, by a Reserve bank 
making an appropriate entry in its records of the securities transferred 
or pledged. The making of such an entry in the records of a Reserve bank 
shall:
    (i) Have the effect of a delivery in bearer form of definitive FmHA 
or its successor agency under Public Law 103-354 securities.
    (ii) Have the effect of a taking of delivery by the transferee or 
pledgee.
    (iii) Constitute the transferee or pledgee a holder.
    (iv) If a pledge, effect a perfected security interest therein in 
favor of the pledgee. A transfer or pledge of book-entry FmHA or its 
successor agency under Public Law 103-354 securities effected under this 
paragraph shall have priority over any transfer, pledge, or other 
interest, theretofore or thereafter effected or perfected under 
paragraph (c)(2) of this section or any other manner.
    (2) A transfer or pledge of transferable FmHA or its successor 
agency under Public Law 103-354 securities, or any interest therein, 
which is maintained by a Reserve bank (in its individual capacity or as 
fiscal agent of the United States) in a book-entry account under this 
subpart, including securities in book-entry form under Sec.  
1901.506(b)(1)(iii) is effected, and a pledge is perfected by any means 
that would be effective under applicable law to effect a transfer or to 
effect and perfect a pledge of FmHA or its successor agency under Public 
Law 103-354 securities, or any interest therein, if the securities were 
maintained by the Reserve bank in bearer definitive form. For purposes 
of transfer or pledge hereunder, book-entry FmHA or its successor agency 
under Public Law 103-354 securities maintained by a Reserve bank shall, 
notwithstanding any provision of law to the contrary, be deemed to be 
maintained in bearer definitive form. A Reserve bank maintaining book-
entry FmHA or its successor agency under Public Law 103-354 securities, 
either in its individual capacity or as fiscal agent of the United 
States, is not a bailee for the purposes of notification of pledges of 
these securities under this paragraph, or a third person in possession 
for the purposes of acknowledgment of transfers thereof under this 
paragraph. Where transferable FmHA or its successor agency under Public 
Law 103-354 securities are recorded on the books of a depositary (a 
bank, banking institution, financial firm, or similar party, which 
regularly accepts in the course of its business FmHA or its successor 
agency under Public Law 103-354 securities as a custodial service for 
customers, and maintains accounts in the names of such customers 
reflecting ownership of or interest in such securities) for account of 
the pledgor or transferor thereof and such securities are on deposit 
with a Reserve bank in a book-entry account hereunder, such depositary 
shall, for purposes of perfecting a pledge of such securities or 
effecting delivery of such securities to a purchaser under applicable 
provisions of law, be the bailee to which notification of the pledge of 
the securities may be given or the third person in possession from which 
acknowledgment of the holding of the securities for the purchaser may be 
obtained. A Reserve bank will not accept notice or advice of a transfer 
or pledge effected or perfected under this paragraph and any such notice 
or advice shall have no effect. A Reserve bank may continue to deal with 
its depositor in accordance with the provisions of this subpart, 
notwithstanding any transfer or pledge effected or perfected under this 
paragraph.
    (3) No filing or recording with a public recording office or officer 
shall be necessary or effective with respect to any transfer or pledge 
of book-entry FmHA or its successor agency under Public Law 103-354 
securities or any interest therein.
    (4) A Reserve bank shall, upon receipt of appropriate instructions, 
convert book-entry FmHA or its successor

[[Page 50]]

agency under Public Law 103-354 securities into definitive FmHA or its 
successor agency under Public Law 103-354 securities and deliver them in 
accordance with such instructions. No such conversion shall affect 
existing interest in such FmHA or its successor agency under Public Law 
103-354 securities.
    (5) A transfer of book-entry FmHA or its successor agency under 
Public Law 103-354 securities within a Federal Reserve Bank shall be 
made in accordance with procedures established by the Reserve bank not 
inconsistent with this subpart. The transfer of book-entry FmHA or its 
successor agency under Public Law 103-354 securities by a Reserve bank 
may be made through a telegraphic transfer procedure.
    (6) All requests for transfer or withdrawal must be made prior to 
the maturity or date of call of the securities.
    (d) Withdrawal of FmHA or its successor agency under Public Law 103-
354 securities. (1) A depositor of book-entry FmHA or its successor 
agency under Public Law 103-354 securities may withdraw them from a 
Reserve bank by requesting delivery of like definitive FmHA or its 
successor agency under Public Law 103-354 securities to itself or on its 
order to a transferee.
    (2) FmHA or its successor agency under Public Law 103-354 securities 
which are actually to be delivered upon withdrawal may be issued in 
bearer or registered form.
    (e) Delivery of FmHA or its successor agency under Public Law 103-
354 securities. A Reserve bank which has received FmHA or its successor 
agency under Public Law 103-354 securities and effected pledges, made 
entries regarding them, or transferred or delivered them according to 
the instructions of its depositor is not liable for conversion or for 
participation in breach of fiduciary duty even though the depositor had 
no right to dispose of or take other action in respect of the 
securities. A Reserve bank shall be fully discharged of its obligations 
under this subpart by the delivery of FmHA or its successor agency under 
Public Law 103-354 securities in definitive form to its depositor or 
upon the order of such depositor. Customers of a member bank or other 
depositary (other than a Reserve bank) may obtain FmHA or its successor 
agency under Public Law 103-354 securities in definitive form only by 
causing the depositor of the Reserve bank to order the withdrawal 
thereof from the Reserve bank.
    (f) Registered securities. (1) No formal assignment shall be 
required for the conversion to book-entry FmHA or its successor agency 
under Public Law 103-354 securities of registered FmHA or its successor 
agency under Public Law 103-354 securities held by a Reserve bank (in 
either its individual capacity or as fiscal agent of the United States) 
on the effective date of this subpart for any purpose specified in Sec.  
1901.506(b)(1). Registered FmHA or its successor agency under Public Law 
103-354 securities deposited thereafter with a Reserve bank for any 
purpose specified in Sec.  1901.506(b) shall be assigned for conversion 
to book-entry FmHA or its successor agency under Public Law 103-354 
securities.
    (2) The assignment which shall be executed in accordance with the 
provisions of subpart F of 31 CFR part 306, so far as applicable, shall 
be to Federal Reserve Bank of ------, as fiscal agent of the United 
States acting on behalf of the Farmers Home Administration or its 
successor agency under Public Law 103-354, United States Department of 
Agriculture, for conversion to book-entry Farmers Home Administration or 
its successor agency under Public Law 103-354 securities.
    (g) Servicing book-entry FmHA or its successor agency under Public 
Law 103-354 securities, payment of interest, payment at maturity or upon 
call. Interest becoming due on book-entry FmHA or its successor agency 
under Public Law 103-354 securities shall be charged to the general 
account of the Treasurer of the United States on the interest due date 
and remitted or credited in accordance with the depositor's 
instructions. Such securities shall be redeemed and charged to the same 
account on the date of maturity or call, and the redemption proceeds, 
principal, and interest shall be disposed of in accordance with the 
depositor's instructions.
    (h) Issuance and redemption. (1) In those instances where the 
Reserve bank is acting as fiscal agent of the

[[Page 51]]

United States acting on behalf of FmHA or its successor agency under 
Public Law 103-354, the following subparts of Treasury Department 
Circular No. 300 (31 CFR part 306), so far as applicable, shall apply to 
such certificates.
    (i) Subpart B, Registration.
    (ii) Subpart C, Transfers, Exchanges and Reissues.
    (iii) Subpart D, Redemption or Payment.
    (iv) Subpart E, Interest.
    (v) Subpart G, Assignments of Registered Securities--General.
    (vi) Subpart F, Assignments by or in Behalf of Individuals.
    (vii) Subpart H, Assignments in Behalf of Estates of Deceased 
Owners.
    (viii) Subpart I, Assignments by or in Behalf of Trustees and 
Similar Fiduciaries.
    (ix) Subpart J, Assignments in Behalf of Private or Public 
Organizations.
    (x) Subpart K, Attorneys in Fact.
    (xi) Subpart L, Transfer Through Judicial Proceedings.
    (xii) Subpart M, Requests for Suspension of Transactions.
    (xiii) Subpart N, Relief for Loss, Theft, Destruction, Mutilation, 
or Defacement of Securities.



Sec.  1901.507  Certificates of beneficial ownership issued by the FmHA 
or its successor agency under Public Law 103-354 Finance Office.

    (a) Orders and payment. Orders for investment in certificates may be 
placed with the Finance Office by mail, telephone, or in person. Payment 
for purchase of certificates may be made by a wire transfer to the 
Federal Reserve Bank of St. Louis for credit to the Farmers Home 
Administration or its successor agency under Public Law 103-354, by a 
certified check or bank draft payable to the Farmers Home Administration 
or its successor agency under Public Law 103-354. The rate of interest 
paid on the certificate will be the rate in effect on the date the 
Finance Office receives the payment.
    (b) Registration. (1) The registration used must express the actual 
ownership of a certificate and may not restrict the authority of the 
owner to dispose of it in any manner. FmHA or its successor agency under 
Public Law 103-354 reserves the right to treat the registration as 
conclusive ownership. Request for registration must be clear, accurate, 
and complete, and include the appropriate taxpayer identifying number or 
social security number.
    (2) The registration of all certificates owned by the same person, 
organization, or fiduciary should be uniform with respect to the name of 
the owner and, in case of fiduciary, the description of the fiduciary 
capacity. Individual owners should be designated by the names by which 
they are ordinarily known or under which they do business, preferably 
including at least one full given name. The name of an individual may be 
preceded by an applicable title, as, for example ``Mrs.'' ``Mr.'', 
``Miss',' ``Ms.''; ``Dr.'', or ``Rev.'', or followed by a designation 
such as ``M.D.'', ``D.D.'', ``Sr.'', or ``Jr.'', Any other similar 
suffix should be included when ordinarily used or when necessary to 
distinguish the owner from another member of his family. The address 
should include, where appropriate, the name and street, route, or any 
other location feature, and zip code.
    (3) If an erroneously inscribed certificate is received, it should 
not be altered in any respect. FmHA or its successor agency under Public 
Law 103-354 should be given full particulars about the error and asked 
to furnish instructions.
    (c) Transfers and exchanges--closed periods--(1) General. Transfer 
of registered certificates should be made by assignment in accordance 
with this section. Registered securities are eligible for denominational 
exchange. Specific instructions for issuance and delivery of new 
certificates signed by the owner or the owner's authorized 
representative must accompany the certificates presented. Certificates 
presented for transfer must be received by FmHA or its successor agency 
under Public Law 103-354 not less than 1 full month before the date on 
which they mature. Any certificates so presented which are received too 
late to comply with this provision will be accepted for payment only.
    (2) Closing of transfer books. The transfer books are closed for 1 
full month preceding interest payment dates. If the date set for closing 
falls

[[Page 52]]

on Saturday, Sunday, or a legal holiday, the books will be closed as of 
the close of business on the last business day preceding that date. The 
books are reopened on the first business day following the date on which 
interest falls due. Registered certificates which have not matured, or 
have been submitted for transfer and are received when the books are 
closed for that certificate, will be processed on or after the date such 
books are reopened. If certificates are received for transfer when the 
books are closed for payment of final interest at maturity, the 
following action will be taken in the absence of different instructions:
    (i) Payment of final interest will be made to the registered owner 
of record on the date the books were closed.
    (ii) Payment of principal will be made to the assignee under a 
proper assignment of the certificate.
    (d) Redemption or payment--(1) General. Certificates are payable in 
regular course of business at maturity. FmHA or its successor agency 
under Public Law 103-354 may provide for the exchange of maturing 
certificates. The registered certificates should be presented and 
surrendered for redemption at the FmHA or its successor agency under 
Public Law 103-354 Finance Office. No assignments or evidence in support 
of them will be required by or on behalf of the registered owner or 
assignee for redemption for his or its account, or for redemption-
exchange if the new certificates are to be registered in exactly the 
same names and forms as in the registrations or assignments of the 
certificates surrendered.
    (2) Redemption at maturity. Registered certificates presented and 
surrendered for redemption at maturity need not be assigned unless the 
owner desires that payment be made to some other person. Should the 
owner so desire assignments should be made to the ``Farmers Home 
Administration or its successor agency under Public Law 103-354 for 
redemption for the account of (inserting name and address of person to 
whom payment is to be made).'' Specific instructions for the issuance 
and delivery of the redemption check signed by the owner or the owner's 
authorized representative must accompany the certificates unless 
included in the assignment. Payment of the principal and interest will 
be made by a check drawn on the Treasurer of the United States to the 
order of the person entitled and mailed in accordance with the 
instructions received. If instructions are not received concerning 
interest, interest will be paid to the registered owner.
    (3) Interest. The interest on FmHA or its successor agency under 
Public Law 103-354 certificates accrues and is payable annually. A full 
interest period does not include the day on which the last preceding 
interest became due, but does include the day on which the next 
succeeding interest payment is due. Certificates will cease to bear 
interest on the date of their maturity. The interest on registered 
certificates is payable by checks drawn on the Treasurer of the United 
States to the order of the registered owners, except as otherwise 
provided in this section. FmHA or its successor agency under Public Law 
103-354 prepares the interest checks in advance of the interest payment 
date and ordinarily mails them in time to reach the addressees on that 
date. Interest on a registered certificate which has not matured and 
which is presented for any transaction when the books for that 
certificate are closed will be paid by check drawn to the order of the 
registered owner of record. On receipt of notice of the death or 
incompetency of an individual named as registered owner, a change in the 
name or in the status of a partnership, corporation, or unincorporated 
association, the removal, resignation, succession, or death of a 
fiduciary or trustee, delivery of interest checks will be withheld 
pending receipt and approval of evidence showing who is entitled to 
receive the interest checks. If the inscriptions on certificates do not 
clearly identify the owners, delivery of interest checks may be withheld 
pending reissue of the certificates in the correct registration, except 
as provided in this section. The final installment of interest will be 
paid by check drawn to the order of the registered owner of record on 
presentation and surrender of the certificate for redemption. To assure 
timely delivery of interest checks, owners should promptly notify FmHA 
or its successor agency under Public Law 103-354 of any change of 
address.

[[Page 53]]

    (e) Assignments. Assignments of certificates should be executed by 
the owner or the owner's authorized representative in the presence of an 
officer authorized to certify assignments. Assignments shall be made on 
the back of the certificate. Registered certificates may be assigned to 
a specified transferee or to FmHA or its successor agency under Public 
Law 103-354 for redemption or for exchange for other certificates 
offered at maturity. Assignments to ``United States, Farmers Home 
Administration or its successor agency under Public Law 103-354,'' 
``Farmers Home Administration or its successor agency under Public Law 
103-354 for Transfer,'' or ``Farmers Home Administration or its 
successor agency under Public Law 103-354 for Exchange'' will not be 
accepted unless supplemented by specific instructions by or in behalf of 
the owner. If an alteration or erasure has been made in an assignment, a 
new assignment from the assignor should be obtained. Otherwise, an 
affidavit or explanation by the person responsible for the alteration or 
erasure should be submitted for consideration.
    (f) Death of certificate holder. The Finance Office should be 
notified of the death of the registered owner of a certificate. The 
following documents should be forwarded with the notice if available.
    (1) A certified copy of the death certificate.
    (2) A certified copy of the court order appointing the Administrator 
or Executor (include the mailing address of the Administrator or 
Executor). The Finance Office will notify the person submitting such 
notice and/or documentation if any other records or documents are 
needed. Legal opinions and advice will be obtained by the Finance Office 
as needed from the Regional Attorney. After all legal requirements are 
met, the certificate should be reissued in the name of the current 
owner.
    (g) Replacement. Lost, stolen, destroyed, or mutilated certificates 
will be replaced by the Finance Office on the registered owner's 
compliance with the requirements of Sec.  1901.509.



Sec.  1901.508  Servicing of insured notes outstanding with investors.

    The Director, or the insured loan officer of the Finance Office, is 
authorized in connection with the sale of any insured note to execute 
required documents on behalf of FmHA or its successor agency under 
Public Law 103-354 and to take other appropriate action, including, but 
not limited to, acknowledging notice of sale of an insured note, or 
requiring an insured holder to sell an insured note to FmHA or its 
successor agency under Public Law 103-354 in connection with any 
voluntary conveyance or foreclosure, or transfer related to liquidation 
of the borrower's account or any other servicing action so related. Upon 
recommendation by the State Director that purchase of an insured note is 
necessary for any servicing action not related to liquidation of the 
borrower's account, authorization may be given by the National Office to 
request the Director, Finance Office, to require a holder to sell an 
insured note to FmHA or its successor agency under Public Law 103-354.
    (a) Assignments--(1) Effective date of assignment. When an insured 
note is sold by a private holder to a private buyer, notice of such sale 
executed by the seller must be given to and acknowledged by FmHA or its 
successor agency under Public Law 103-354 in order for the sale to be 
binding on FmHA or its successor agency under Public Law 103-354, as to 
FmHA or its successor agency under Public Law 103-354, the effective 
date of the sale will be the acknowledgment date specified in the 
acknowledgement of notice executed by FmHA or its successor agency under 
Public Law 103-354.
    (2) Assignment to FmHA or its successor agency under Public Law 103-
354 at request of FmHA or its successor agency under Public Law 103-354. 
At any time FmHA or its successor agency under Public Law 103-354 
considers it necessary for proper servicing of the loan, FmHA or its 
successor agency under Public Law 103-354 may require, in writing, a 
private holder to sell an insured note to FmHA or its successor agency 
under Public Law 103-354.
    (3) Assignment to FmHA or its successor agency under Public Law 103-
354 at option of holder. A private holder at any

[[Page 54]]

time during the option period may require, in writing, FmHA or its 
successor agency under Public Law 103-354 to purchase an insured note.
    (4) Price. If FmHA or its successor agency under Public Law 103-354 
is the buyer of an insured note, the price will be the par value as of 
the effective date of the sale. In other cases, the price will be 
determined by an agreement between the parties.
    (b) Sale of insured notes by private holders to private buyers. (1) 
On receipt of notice from a private holder of intention to assign an 
insured note, the Director, Finance Office, will send the holder:
    (i) Form FmHA or its successor agency under Public Law 103-354 471-7 
``Notice and Acknowledgment of Sale of Insured or Guaranteed Loan.''
    (ii) A statement of the unpaid principal. If requested the Director, 
Finance Office, will furnish a statement of account instead of or in 
addition to a statement of the unpaid principal.
    (iii) Appropriate information on how to complete the assignment.
    (2) If the Director, Finance Office, is informed that an insured 
note has been assigned and FmHA or its successor agency under Public Law 
103-354 is requested to recognize the assignment, the Director, Finance 
Office, will send the assignor Form FmHA or its successor agency under 
Public Law 103-354 471-7, with directions for its execution.
    (3) On receipt of Form FmHA or its successor agency under Public Law 
103-354 471-7 properly executed by the assignor, the Director, Finance 
Office, will complete and execute the acknowledgment section of the 
form. The Director, Finance Office, will retain the original of the 
form, have two facsimile copies made and send one to the assignor, and 
one to the assignee. For any correction or other change to be made in 
the record of the name or address of a private holder, or of a 
designated agent of a private holder, a request will be made to FmHA or 
its successor agency under Public Law 103-354 in writing.
    (4) As of the date of the acknowledgment, executed by the Director, 
Finance Office, on Form FmHA or its successor agency under Public Law 
103-354 471-7 the Director, Finance Office, will transfer the insured 
note from the assignor to the assignee as the insured holder on the 
records of FmHA or its successor agency under Public Law 103-354. The 
name and address of the assignee will be recorded by FmHA or its 
successor agency under Public Law 103-354 exactly as they appear on Form 
FmHA or its successor agency under Public Law 103-354 471-7.
    (5) Payments transmitted by FmHA or its successor agency under 
Public Law 103-354 on or after the acknowledgment date shown on Form 
FmHA or its successor agency under Public Law 103-354 471-7 will be 
transmitted to the assignee. The Director, Finance Office, will give 
notice to the assignor and the assignee of any payments transmitted by 
FmHA or its successor agency under Public Law 103-354 to the assignor 
before the acknowledgment date and after either the date of sale, or the 
date of the statement of account, whichever is earlier. However, FmHA or 
its successor agency under Public Law 103-354 will not be liable for any 
failure to give such notice.
    (c) Assignment of insured notes to FmHA or its successor agency 
under Public Law 103-354--(1) Assignment at the request of the holder. 
For assignment of an insured note to FmHA or its successor agency under 
Public Law 103-354 during the option period at the request of the 
holder, the following procedure will apply:
    (i) The holder will endorse the insured note as follows: ``Pay to 
the order of the United States of America. Without recourse.'' The 
holder will then deliver the endorsed note, together with the insurance 
agreement, to the Director, Finance Office.
    (ii) On receipt of the endorsed note with the accompanying insurance 
agreement, the Director, Finance Office, will acknowledge receipt of the 
note and process payment to the assignor of the par value of the note as 
of the date of the Treasury check.
    (2) Assignment at the request of FmHA or its successor agency under 
Public Law 103-354. The procedure for assigning an insured note at the 
request of FmHA or its successor agency under Public Law 103-354 will be 
the same as that prescribed in paragraph (c)(1) of this section, except 
that the Director, Finance

[[Page 55]]

Office, will send a written request to the holder requiring that the 
insured note be assigned to FmHA or its successor agency under Public 
Law 103-354 and delivered to the Director, Finance Office, with the 
accompanying insurance agreement. The Director, Finance Office, will 
explain that the assignment is necessary to enable FmHA or its successor 
agency under Public Law 103-354 to service the account properly and will 
give the holder all necessary information as to the manner of making the 
assignment and the amount to be paid by FmHA or its successor agency 
under Public Law 103-354.
    (d) Replacement of called or fully paid notes. Certain insurance 
endorsements contain a clause or rider providing for a replacement note 
when the original note is paid in full, or is called by FmHA or its 
successor agency under Public Law 103-354. This provision applies to 
loans sold for a fixed period of 10 years or longer for loans sold on or 
after December 1, 1969, and a fixed period of 15 years or longer for 
loans sold before December 1, 1969. If a note is paid in full or called 
by the Government and the lender is entitled to a replacement note, the 
lender may obtain a certificate of beneficial ownership in lieu of the 
replacement note. The certificate will carry the rates and terms 
applicable to the replacement note.
    (e) Death of a noteholder. The Finance Office should be notified of 
the death of a holder of an insured note. The following documents should 
be forwarded with the notice if available:
    (1) A certified copy of the death certificate.
    (2) A certified copy of the court order appointing the Administrator 
or Executor (include the mailing address of the Administrator or 
Executor). The Finance Office will notify the person submitting the 
notice and/or documentation if any other records or documents are 
needed, and will provide any additional instructions that are needed. 
Legal opinions and advice will be obtained by the Finance Office as 
needed from the Regional Attorney.



Sec.  1901.509  Loss, theft, destruction, mutilation, or defacement of 
insured notes, insurance contracts, and certificates of beneficial ownership.

    (a) Block sale insurance contracts. The Associate Administrator is 
authorized in connection with block sale insurance contracts to 
authorize the FmHA or its successor agency under Public Law 103-354's 
fiscal agent to establish requirements for issuance of a replacement 
insurance contract when the original issued by the Federal Reserve Bank 
of New York (FmHA or its successor agency under Public Law 103-354's 
fiscal agent) is lost, stolen, destroyed, mutilated, or defaced. When a 
block sale insurance contract is lost, stolen, or destroyed, a duplicate 
may be issued to the registered holder upon receipt of an acceptable 
certificate of loss and an indemnity bond without surety. The 
certificate of loss should include the legal name and present address of 
the owner and address when issued, if different from the present 
address; the capacity of person certifying, if other than owner; the 
identity of the insurance contract, including series number, contract 
number, denomination, issue date, and form of inscription of registry, 
and the full statement of circumstances of loss. All available portions 
of an insurance contract that is mutilated, defaced, or partially 
destroyed should be submitted to the Federal Reserve Bank of New York 
(FmHA or its successor agency under Public Law 103-354's fiscal agent) 
for determination as to whether a duplicate insurance contract can be 
issued without a certificate of loss and posting of an indemnity bond. 
In the event the holder of a block sales insurance contract obtains 
possession of the underlying notes, the requirements of paragraph (b) of 
this section apply.
    (b) Notes and certificates of beneficial ownership sold by County 
Office and Finance Office. The Director, or the insured loan officer of 
the Finance Office, is authorized on behalf of the Government, in 
connection with insured notes or certificates of beneficial ownership 
sold through the FmHA or its successor agency under Public Law 103-354 
Finance Office to require indemnity

[[Page 56]]

bonds from a noteholder when a note or certificate is lost, stolen, 
destroyed, mutilated, or defaced while in the custody of the holder or 
his designee. When a note or certificate of beneficial ownership is 
lost, stolen, or destroyed while in the custody of the holder or his 
designee, the following will apply:
    (1) A certificate of loss should be filed with FmHA or its successor 
agency under Public Law 103-354 Finance Office. The certificate should 
include:
    (i) Legal name and present address of owner when issued, if 
different from present address.
    (ii) Capacity of person certifying, if other than the owner.
    (iii) Identity of the note or certificate of beneficial ownership, 
including the name and FmHA or its successor agency under Public Law 
103-354 case number of the maker thereof, issue date, interest rate of 
obligation, face amount of note or certificate of beneficial ownership, 
and a full description of any assignment, endorsement, or any other 
writing.
    (iv) A full statement of circumstances of the loss, theft, or 
destruction of the note.
    (2) An indemnity bond in the amount of the unpaid principal and 
interest will be required except in the following instances:
    (i) Substantially the entire note or certificate of beneficial 
ownership is presented and surrendered by the owner or holder, and the 
Director, Finance Office, is satisfied as to the identity of the 
instruments and that any missing portions are not sufficient to form the 
basis of a valid claim against the United States or the borrower; or
    (ii) The owner or holder is the United States, a Federal Reserve 
Bank, a Federal Government Corporation, a State or territory, or the 
District of Columbia.
    (3) An indemnity bond without surety will be provided in the 
following cases:
    (i) Cases involving registered unassigned obligations held by banks, 
trust companies, savings and loan associations, or companies holding 
certificates of authority from Secretary of the Treasury as acceptable 
sureties on Federal Bonds (companies listed on Treasury Department 
Circular 570) where the financial responsibilities of such claimants are 
well known or readily ascertainable.
    (ii) Cases involving registered unassigned obligations where the 
evidence reasonably justifies a conclusion that the obligations were 
destroyed and the unpaid principal and interest amount does not exceed 
$1,000.
    (4) An indemnity posted with a qualified surety is required in all 
cases involving registered unassigned obligations other than those cited 
in paragraphs (b)(2)(i), (b)(2)(ii), (b)(3)(i) and (b)(3)(ii) of this 
section. A qualified surety is a company holding a certificate of 
authority from the Secretary of the Treasury as acceptable sureties on 
Federal Bonds, and listed in Treasury Department Circular 570.
    (5) All indemnity bonds for notes must be payable to both the 
borrower and FmHA or its successor agency under Public Law 103-354. All 
indemnity bonds for certificates of beneficial ownership must be payable 
to FmHA or its successor agency under Public Law 103-354. The bond may 
be posted at the time the note or certificate of beneficial ownership 
becomes eligible for repurchase by FmHA or its successor agency under 
Public Law 103-354. If the holder desires to continue to hold the note 
for the life of the note, an indemnity bond will not be required.
    (6) An assignment of the note or certificate of beneficial ownership 
shall be made to the United States of America, acting through the 
Farmers Home Administration or its successor agency under Public Law 
103-354, United States Department of Agriculture. An acceptable form of 
assignment is available from the Director, Finance Office.
    (c) Other cases. Cases involving bearer obligations and other cases 
not discussed in this section will be forwarded to the Director, Finance 
Office, for requirements.
    (d) Replacement of notes. FmHA or its successor agency under Public 
Law 103-354 will not attempt to obtain replacement notes from borrowers.

Subparts L-M [Reserved]

[[Page 57]]



                    Subpart N_Indian Outreach Program

    Authority: 7 U.S.C. 1989; 42 U.S.C. 1480; 42 U.S.C. 2942; 5 U.S.C. 
301; sec. 10, Pub. L. 93-357, 88 Stat. 392; delegation of authority by 
the Sec. of Agri., 7 CFR 2.23, delegation of authority by the Asst. Sec. 
for Rural Development, 7 CFR 2.70; delegation of authority by Dir., OEO, 
29 FR 14764, 33 FR 9850.

    Source: 43 FR 3697, Jan. 27, 1978, unless otherwise noted.



Sec.  1901.651  Purpose.

    The purpose of this subpart is to establish procedures and 
responsibilities for carrying out the Farmers Home Administration (FmHA) 
or its successor agency under Public Law 103-354 American Indian 
Outreach Program.



Sec.  1901.652  Goals.

    The FmHA or its successor agency under Public Law 103-354 American 
Indian Outreach Program is a concerted effort to:
    (a) Make all FmHA or its successor agency under Public Law 103-354 
programs more accessible and available to Indians living on and off 
reservations.
    (b) Surface and attempt to correct problems and obstacles that 
prevent the participation by eligible Indians and Indian tribes in FmHA 
or its successor agency under Public Law 103-354 programs.
    (c) Increase the production level of FmHA or its successor agency 
under Public Law 103-354 loans and grants going to American Indians both 
on and off reservations.
    (d) Provide pamphlets, publications and information on FmHA or its 
successor agency under Public Law 103-354 programs to individual 
Indians, Indian tribes and Tribal leaders, Bureau of Indian Affairs 
(BIA) personnel, and other interested groups and individuals.



Sec.  1901.653  Field action.

    State Coordinators of Indian activities appointed by State Directors 
will:
    (a) Maintain close liaison with local FmHA or its successor agency 
under Public Law 103-354 supervisors and officials serving Indian 
Populations and reservations;
    (b) Work closely with local District, State, and National Office 
representatives to remove obstacles and solve problems that impede the 
use of FmHA or its successor agency under Public Law 103-354 programs on 
Indian reservations;
    (c) Be familiar with all FmHA or its successor agency under Public 
Law 103-354 loan and grant programs available to Indians living on and 
off reservations, including the types of security and eligibility 
requirements;
    (d) Be aware of any unique relationship that may exist between 
Indians and the Federal and State governments affecting Indian 
participation in the FmHA or its successor agency under Public Law 103-
354 loan and grant programs;
    (e) As necessary, attend pertinent meeting of Indian groups, 
government agencies, and others concerned with economic and social 
development of Indians;
    (f) If possible, become personally acquainted with Indian leaders 
and non-Indians leaders in Indian affairs in the State;
    (g) Arrange for the training of members of Indian tribes, 
individuals, and interested groups involved in Indian affairs, in the 
packaging and distribution of materials for use in FmHA or its successor 
agency under Public Law 103-354 loan and grant programs.



Sec.  1901.654  FmHA or its successor agency under Public Law 103-354 
publications.

    FmHA or its successor agency under Public Law 103-354 publications, 
such as ``Rural Credit for American Indians,'' a handbook of FmHA or its 
successor agency under Public Law 103-354 programs, and ``FmHA or its 
successor agency under Public Law 103-354 Credit for American Indians,'' 
or other materials to be developed, will be used as supplementary 
training and informational aids for Indian communities, individuals, 
governmental agencies, and other groups involved in Indian affairs.



Sec.  1901.655  Reports.

    (a) State Directors will keep the National Office advised of any 
problems and obstacles in FmHA or its successor agency under Public Law 
103-354's procedures relating to Indian laws or customs that cannot be 
resolved locally

[[Page 58]]

and which prevent American Indians from participating in the FmHA or its 
successor agency under Public Law 103-354 programs on or off the 
reservations.
    (b) Any changes in personnel serving as State Coordinator of Indian 
activities will be reported to the National Office.
    (c) Each State Director will make a semi-annual memorandum report on 
January 1 and July 1 of each year on activities and accomplishments in 
his State. The report will specifically reflect what has been done to 
carry out the items set forth in Sec.  1901.653. The report will be sent 
to the National Office, Attention, Coordinator of Indian Activities.



PART 1902_SUPERVISED BANK ACCOUNTS--Table of Contents




         Subpart A_Disbursement of Loan, Grant, and Other Funds

Sec.
1902.1 General.
1902.2 Policies concerning disbursement of funds.
1902.3 Procedures to follow in fund disbursement.
1902.4 Establishing MFH reserve accounts in a supervised bank account.
1902.5 [Reserved]
1902.6 Establishing supervised bank accounts.
1902.7 Pledging collateral for deposit of funds in supervised bank 
          accounts.
1902.8 [Reserved]
1902.9 Deposits.
1902.10 Withdrawals.
1902.11 District and county office records.
1902.12-1902.13 [Reserved]
1902.14 Reconciliation of accounts.
1902.15 Closing accounts.
1902.16 Request for withdrawals by State Director.
1902.17-1902.49 [Reserved]
1902.50 OMB control number.

Exhibit A to Subpart A [Reserved]
Exhibit B to Subpart A--United States Department of Agriculture, Farmers 
          Home Administration or Its Successor Agency Under Public Law 
          103-354--Interest-Bearing Deposit Agreement

Subparts B-C [Reserved]

    Authority: Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 7 U.S.C. 6991, et 
seq.; 42 U.S.C. 1480; Reorganization Plan No. 2 of 1953 (5 U.S.C. App.).



         Subpart A_Disbursement of Loan, Grant, and Other Funds

    Source: 46 FR 36106, July 14, 1981, unless otherwise noted.



Sec.  1902.1  General.

    This subpart prescribes the policies and procedures of the Farmers 
Home Administration (FmHA) or its successor agency under Public Law 103-
354 for disbursement of funds under the Loan Disbursement System (LDS), 
in establishing and using supervised bank accounts, and in placing 
Multi-Family Housing (MFH) reserve accounts in supervised bank accounts. 
The LDS system provides for disbursement of funds on an as needed basis 
to substantially reduce interest costs to FmHA or its successor agency 
under Public Law 103-354 borrowers, U.S. Treasury, and FmHA or its 
successor agency under Public Law 103-354.
    (a) Forms FmHA or its successor agency under Public Law 103-354 
1940-1, ``Request for Obligation of Funds,'' and FmHA or its successor 
agency under Public Law 103-354 1944-51, ``Multiple Family Housing 
Obligation--Fund Analysis,'' provide for obligation only, obligation and 
check request for the full amount of the loan or grant except for MFH, 
and obligation and check request for a partial amount of the loan or 
grant. The instructions on when and how to use these forms are contained 
in the Forms Manual Insert (FMI) for the forms. Instructions for using 
Form FmHA or its successor agency under Public Law 103-354 1944-51 for 
obligation and check request via computer terminal may also be found in 
the ``Multiple Family Housing User Procedures.'' FmHA or its successor 
agency under Public Law 103-354 forms are available in any FmHA or its 
successor agency under Public Law 103-354 office.
    (b) Forms FmHA or its successor agency under Public Law 103-354 440-
57, ``Acknowledgement of Obligated Funds/Check Request'' and FmHA or its 
successor agency under Public Law 103-354 1944-57, ``MFH Acknowledgement 
of Obligated Funds/Check Request,'' provide for:
    (1) The initial loan check;
    (2) All subsequent loan checks;

[[Page 59]]

    (3) Making corrections on the data in the loan account as reflected 
on the form;
    (4) Notifying the Finance Office of the loan closing date and the 
loan amortization effective date;
    (5) Providing requested information from the Finance Office; and,
    (6) For Multiple Family Housing (MFH) loans providing Maximum Debt 
Limit and Appraised Value. The instructions on when and how to use these 
forms are contained in the FMI for the forms. However, for MFH loans and 
grants whenever possible, check obligation requests and loan closings 
should be done via the field office computer terminal. Instructions may 
be found in the ``Multiple Family Housing User Procedures.''
    (c) See FmHA or its successor agency under Public Law 103-354 
Instruction 2018-D (available in any FmHA or its successor agency under 
Public Law 103-354 office) for procedures to follow if checks are lost 
or destroyed.
    (d) Borrowers as referred to in this subpart include both loan and 
grant recipients. They are referred to as depositors in the deposit 
agreements hereinafter described. References herein and in deposit 
agreements to ``other lenders'' include lenders and grantors other than 
FmHA or its successor agency under Public Law 103-354.
    (e) Banks referred to in this subpart are those in which deposits 
are insured by the Federal Deposit Insurance Corporation (FDIC).
    (f) Savings and Loans referred to in this subpart are those in which 
deposits are insured by the Federal Savings and Loan Insurance 
Corporation (FSLIC).
    (g) Credit Unions referred to in this subpart are those in which 
deposits are insured by the National Credit Union Administration (NCUA).
    (h) Financial Institutions as referred to in this subpart include 
banks, savings and loans, and credit unions which are covered by the 
proper insurance coverage cited in paragraphs (e), (f) and (g) of this 
section.
    (i) Supervised bank accounts referred to in this subpart are bank, 
savings and loan, or credit union accounts established through deposit 
agreements entered into between the borrower, the United States of 
America acting through the FmHA or its successor agency under Public Law 
103-354, and the Financial Institution on Form FmHA or its successor 
agency under Public Law 103-354 402-1, ``Deposit Agreement''.
    (j) Form FmHA or its successor agency under Public Law 103-354 402-1 
provides for the deposit of funds in a supervised bank account to assume 
the performance of the borrower's obligation to FmHA or its successor 
agency under Public Law 103-354 in connection with a loan and grant.
    (k) ``Interest-Bearing Deposit Agreement'' (Exhibit B), provides for 
the deposit of loan or grant funds that are not required for immediate 
disbursement in specified interest-bearing deposits, and it is executed 
in conjunction with Form FmHA or its successor agency under Public Law 
103-354 402-1.

[46 FR 36106, July 14, 1981, as amended at 50 FR 8584, Mar. 4, 1985; 53 
FR 35670, Sept. 14, 1988; 54 FR 47959, Nov. 20, 1989; 59 FR 3778, Jan. 
27, 1994; 59 FR 54788, Nov. 2, 1994]



Sec.  1902.2  Policies concerning disbursement of funds.

    (a) The Automated Data Processing System (ADPS) will be utilized 
whenever possible in accordance with the specific program procedures, 
except where prohibited by State statutes. The capability to request 
Treasury checks on an as needed basis reduces the need for supervised 
bank accounts. Therefore, supervised bank accounts will be used only in 
certain instances. e.g.:
    (1) When a construction loan is made and the construction is 
substantially completed, but a small amount is being withheld pending 
completion of landscaping or some similar item, or a small loan closing. 
In this case, the amount of funds not disbursed when the predetermined 
amortization effective date occurs may be placed in a supervised bank 
account for future disbursement as appropriate.
    (2) When a large number of checks will be issued in the construction 
of a dwelling or other development, as for example under the ``borrower 
method'' of construction or in Operating (OL) loans and Emergency (EM) 
loans. In such cases, installment checks will be requested from the 
Finance Office as

[[Page 60]]

necessary and deposited in a supervised bank account and disbursed to 
suppliers, sub-contractors, etc., as necessary. Those District and 
County Offices authorized to request checks by the ADPS may request more 
than one check at a time. If more than one check is required, a Form 
FmHA or its successor agency under Public Law 103-354 440-57 or Form 
FmHA or its successor agency under Public Law 103-354 1944-57 will be 
prepared for each check.
    (3) Association loan and grant funds made on a multiple advance 
basis need not be deposited in a supervised bank account unless required 
by State statutes or otherwise determined necessary by the Loan Approval 
Official.
    (4) Supervised bank accounts will be used only when needed as 
defined in paragraph (a)(6) of this section to assure the correct 
expenditures of all or a part of loan and grant funds, borrower 
contributions, and borrower income. Such accounts will be limited in 
amount and duration to the extent feasible through the prudent 
disbursement of funds and the prompt termination of the interests of 
FmHA or its successor agency under Public Law 103-354 and other lenders 
when the accounts are no longer required.
    (5) Income from the sale of security or Economic Opportunity (EO) 
property or the proceeds from insurance on such property will be 
deposited in a supervised bank account under Form FmHA or its successor 
agency under Public Law 103-354 402-1 when the District Director or 
County Supervisor determines it is needed as defined in paragraph (a)(6) 
of this section to assure that the funds will be available for 
replacement of the property.
    (6) When it is determined by the County Supervisor and requested or 
agreed to by the borrower that special supervision is needed in the 
management of the borrower's financial affairs, funds may be deposited 
in a supervised bank account. This supervisory technique will be used 
for a temporary period to help the borrower learn to properly manage 
his/her financial affairs. Such a period will not exceed one year unless 
extended by the District Director.
    (7) In exceptional cases when the unincorporated EO cooperative or 
grazing association borrower cannot obtain a position fidelity bond, its 
income may be deposited as provided for in Sec.  1902.6 (and Sec.  
1902.2(f) of this subpart if another lender is involved).
    (b) For all construction loans and those loans using multiple 
advances, only the actual amount to be disbursed at loan closing will be 
requested through the State Office terminal. Subsequent checks will be 
ordered as needed through the ADPS system.
    (c) Program instructions provide information as to the type of note 
to be utilized and the method of handling advances and the interest 
accrued thereon. For individual loan programs, interest will accrue from 
the loan closing date or date of check whichever is later. For 
association and organization type loans interest will accrue from the 
date the check is delivered to the borrower. For all RRH, RCH, LH or RHS 
loans, interest will accrue from the date of the check.
    (d) For all loan accounts, when the total amount has not been 
advanced at the amortization effective date, as defined in the FMI for 
Form FmHA or its successor agency under Public Law 103-354 1940-1, (and 
Form FmHA or its successor agency under Public Law 103-354 1944-51, for 
multiple family housing), the Finance Office will forward the remaining 
balance to the District Director or County Supervisor for appropriate 
action, unless the District Director or County Supervisor notifies the 
Finance Office of other arrangements.
    (e) When a check cannot be negotiated within 20 working days from 
the date of the check, the District Director or County Supervisor will 
process the check(s) with Form(s) FmHA or its successor agency under 
Public Law 103-354 1940-10, ``Cancellation of U.S. Treasury Check and/or 
Obligation,'' (or Form FmHA or its successor agency under Public Law 
103-354 1944-53, ``Multiple Family Housing Cancellation of U.S. Treasury 
Check and/or Obligation,'' for multiple family housing loans) in 
accordance with FmHA or its successor agency under Public Law 103-354 
Instruction 2018-D (available in any FmHA or its successor agency under 
Public Law 103-354 office).
    (f) The debt instruments executed at the time of loan closing 
constitute an

[[Page 61]]

obligation on the part of the Government to disburse all funds at one 
time or in multiple advances provided the funds are for purposes 
authorized by the Government at the time of loan closing. This 
obligatory commitment takes priority over any intervening liens or 
advances by other creditors regardless of the provisions of the State 
laws involved.

[46 FR 36106, July 14, 1981, as amended at 50 FR 8584, Mar. 4, 1985; 53 
FR 35670, Sept. 14, 1988; 54 FR 47959, Nov. 20, 1989; 55 FR 21524, May 
25, 1990; 59 FR 54788, Nov. 2, 1994]



Sec.  1902.3  Procedures to follow in fund disbursement.

    (a) The District Director or County Supervisor will determine during 
loan approval the amount(s) of loan check(s)--full or partial--and 
forward such request to be processed through the ADPS system.
    (b) When check(s) are delivered to the District or County Office, 
the District Director or County Supervisor will make sure that the name 
of the borrower and the amount(s) of check(s) coincide with the request 
on file. The District Director or County Supervisor should be sure that 
the check is properly endorsed to insure payment to the intended 
recipient. Examples of such restrictive endorsements are:
    (1) ``For Deposit only to Account No. (Number of Construction 
Account) of (Name of Borrower) in (Name of Financial Institution).''
    (2) ``Pay to the order of (3rd party payee)''--(Contractor, 
Developer, Sub-Contractor, Building Supply House, etc.) for the purpose 
of ----------.
    (c) When necessary and only under the circumstances listed in Sec.  
1902.2 the District Director or County Supervisor will establish, or 
cause to be established, a supervised bank account. Funds deposited in a 
supervised bank account are to be recorded and accounted for on Form 
FmHA or its successor agency under Public Law 103-354 402.2, ``Statement 
of Deposits and Withdrawals.''

[46 FR 36106, July 14, 1981, as amended at 53 FR 26588, July 14, 1988; 
53 FR 35670, Sept. 14, 1988; 54 FR 39727, Sept. 28, 1989]



Sec.  1902.4  Establishing MFH reserve accounts in a supervised bank account.

    (a) General requirements. All MFH borrowers required to maintain 
reserve accounts must place the reserve accounts in a supervised bank 
account(s) which meets the following requirements:
    (1) Countersignature requirements. The reserve account must require 
that any funds withdrawn be countersigned by an authorized FmHA or its 
successor agency under Public Law 103-354 official.
    (2) Restrictions on collateral. The financial institution holding 
the reserve account must ensure that the funds are not pledged or taken 
as security without the Agency's prior consent.
    (3) Interest bearing. The reserve account funds are encouraged to be 
maintained in an interest-bearing account. The ``Interest-Bearing 
Deposit Agreement'' set out in exhibit B of this subpart is not required 
to be used for reserve accounts.
    (4) Restricted investments. Reserve funds must be placed in 
investments authorized in subpart C of part 1930 of this chapter. The 
authorized investments are deemed to be of acceptable risk such that the 
potential for any loss is minimal.
    (5) Financial institutions. The reserve account must be maintained 
in authorized financial institutions set out in subpart C of part 1930 
of this chapter (e.g., banks, savings and loan institutions, credit 
unions, brokerage firms, mutual funds, etc.). Generally, any financial 
institution may be used provided invested or deposited funds are insured 
to protect against theft and dishonesty. The reserve account funds need 
not be Federally insured. However, if Federally insured, any amount held 
above the Federal insurance ceilings established must be backed by a 
pledge of collateral from the financial institution, or otherwise 
covered by non-federal insurance against theft and dishonesty.
    (6) Rules where multiple projects are involved. A reserve account(s) 
must be maintained for each borrower. When a borrower owns multiple 
projects, reserve accounts may be established for each project. A single 
reserve account may also be established by a borrower

[[Page 62]]

owning multiple projects, provided the conditions set out in subpart C 
of part 1930 of this chapter are met.
    (7) Term. Reserve accounts are expected to be kept for the full term 
of the loan.
    (b) Deposits and account activity statements--(1) Deposits. 
Generally, the FmHA or its successor agency under Public Law 103-354 
will not require the review or approval of deposits or the use of Forms 
FmHA or its successor agency under Public Law 103-354 402-1 or FmHA or 
its successor agency under Public Law 103-354 402-2.
    (2) Account activity statements. Generally, the FmHA or its 
successor agency under Public Law 103-354 will not monitor or reconcile 
the reserve account activity statements issued periodically by the 
financial institutions holding the funds. FmHA or its successor agency 
under Public Law 103-354 will monitor reserve account levels through 
budget reports, audits, and Agency reserve tracking systems. If disputes 
arise or the borrower is in violation of Agency regulations, the Agency 
may require account activity statements. When account activity 
statements are sought, it will normally be sufficient to obtain the 
statement which reflects balances as of the last activity statement 
ending period. Form FmHA or its successor agency under Public Law 103-
354 402-2 is not required to be used.

[59 FR 3778, Jan. 27, 1994]



Sec.  1902.5  [Reserved]



Sec.  1902.6  Establishing supervised bank accounts.

    (a) Each borrower will be given an opportunity to choose the 
financial institution in which the supervised bank account will be 
established, provided the bank is a member of the FDIC, the savings and 
loan is a member of the FSLIC, and the credit union is a member of the 
NCUA.
    (b) When accounts are established, it should be determined that:
    (1) The financial institution is fully informed concerning the 
provisions of the applicable deposit agreement,
    (2) Agreements are reached with respect to the services to be 
provided by the financial institution including the frequency and method 
of transmittal of checking account statements, and
    (3) Agreement is reached with the financial institution regarding 
the place where the counter-signature will be on checks.
    (c) When possible, District Directors or County Supervisors will 
make arrangements with financial institutions to waive service charges 
in connection with supervised bank accounts. However, there is no 
objection to the payment by the borrower of a reasonable charge for such 
service.
    (d) For each borrower, if the amounts of any loan and grant funds, 
plus any borrower contributions and funds from other sources to be 
deposited in the supervised bank account will exceed $100,000, the 
financial institution will be required to pledge collateral for the 
excess over $100,000, before the deposit is made (see Sec.  1902.7).
    (e) Only one supervised bank account will be established for any 
borrower regardless of the amount or source of funds, except for RRH 
loans where separate accounts will be established for each project.
    (f) When a supervised bank account is established, an original and 
two copies of the applicable Deposit Agreement and the Interest-Bearing 
Deposit Agreement (Exhibit B), when applicable, will be executed by the 
borrower, the financial institution, and a District or County Office 
employee. The original will be retained in the borrower's case file, one 
executed copy will be delivered to the financial institution and one 
executed copy to the borrower. An extra copy of the Interest-Bearing 
Deposit Agreement, when applicable, will be prepared and attached to the 
certificate, passbook, or other evidence of deposit representing the 
interest-bearing deposit.
    (1) If an agreement on the applicable Deposit Agreement has 
previously been executed and Form FmHA or its successor agency under 
Public Law 103-354 402-6, ``Termination of Interest in Supervised Bank 
Account,'' has not been executed with respect to it, a new agreement is 
not required when additional funds are to be deposited unless requested 
by the financial institution.

[[Page 63]]

    (2) When the note and security instrument are signed by two joint 
borrowers or by both husband and wife, a joint survivorship supervised 
bank account will be established from which either can withdraw funds if 
State laws permit such accounts. In such cases both parties will sign 
the Deposit Agreement(s).

[46 FR 36106, July 14, 1981, as amended at 53 FR 231, Jan. 6, 1988]



Sec.  1902.7  Pledging collateral for deposit of funds in supervised 
bank accounts.

    (a) Funds in excess of $100,000, per financial institution, 
deposited for borrowers in supervised bank accounts, must be secured by 
pledging acceptable collateral with the Federal Reserve Bank (FRB) in an 
amount not less than the excess.
    (b) As soon as it is determined that the loan will be approved and 
the applicant has selected or tentatively selected a financial 
institution for the supervised bank account, the District Director or 
County Supervisor will contact the financial institution to determine:
    (1) That the financial institution selected is insured by the FDIC 
(banks), FSLIC (savings and loans), or NCUA (credit unions).
    (2) Whether the financial institution is willing to pledge 
collateral with the FRB under 31 CFR part 202 (Treasury Circular 176) to 
the extent necessary to secure the amount of funds being deposited in 
excess of $100,000.
    (3) If the financial institution is not a member of the Federal 
Reserve System, it will be necessary for the financial institution to 
pledge the securities with a correspondent bank who is a member of the 
System. The correspondent bank should contact the FRB informing them 
they are holding securities pledged for the supervised bank account 
under 31 CFR part 202 (Treasury Circular 176).
    (c) If the financial institution is agreeable to pledging 
collateral, the District Director or County Supervisor should complete 
FmHA or its successor agency under Public Law 103-354 Form Letter 1901-
A-2 ``Designated Financial Institution--Collateral Pledge'' in an 
original and two copies, the original for the National Office, the first 
copy for the State Office, and the second copy for the District or 
County Office. The FmHA or its successor agency under Public Law 103-354 
Form Letter 1902-A-2 should be forwarded to the National Office at least 
30 days before the date of loan closing.
    (d) The National Office will arrange for the financial institution 
under its designation as a depositary and financial agent of the U.S. 
Government to pledge the requested collateral.
    (e) If, two days before loan closing, the local FmHA or its 
successor agency under Public Law 103-354 office which requested the 
collateral has not received notification from National Office that 
collateral has been pledged, contact should be made with the financial 
institution to ascertain whether they have pledged collateral with their 
local FRB under 31 CFR part 202 (Treasury Circular 176). If the 
financial institution has pledged collateral, the local FmHA or its 
successor agency under Public Law 103-354 office should contact the 
National Office, Budget Division, Revolving Fund Analysis Branch who 
will follow-up with the local FRB concerning the collateral.
    (f) When the amount of deposit in the supervised bank account has 
been reduced to a point where the financial institution desires part or 
all of the collateral released, it should contact the National Office at 
the address noted above. The local FmHA or its successor agency under 
Public Law 103-354 office will be contacted for release authorization. 
The authorization release will be made through the local FRB, with 
notification to the financial institution. The local FmHA or its 
successor agency under Public Law 103-354 office may also request 
release through the National Office.

[46 FR 36106, July 14, 1981, as amended at 53 FR 231, Jan. 6, 1988; 53 
FR 24437, June 29, 1988; 56 FR 50648, Oct. 8, 1991]



Sec.  1902.8  [Reserved]



Sec.  1902.9  Deposits.

    (a) Deposit by FmHA or its successor agency under Public Law 103-354 
personnel. (1) Checks made payable solely to the Federal Government, or 
any agency thereof, and a joint check when

[[Page 64]]

the Treasurer of the United States is a joint payee, may not be 
deposited in a supervised bank account.
    (2) FmHA or its successor agency under Public Law 103-354 personnel 
will accept funds for deposit in a borrower's supervised bank account 
only in the form of a check or money order endorsed by the borrower 
``For Deposit Only,'' or a check drawn to the order of the financial 
institution in which the funds are to be deposited, or a loan check 
drawn on the U.S. Treasury.
    (i) A joint check that is payable to the borrower and FmHA or its 
successor agency under Public Law 103-354 will be endorsed by the 
District Director or County Supervisor as provided in Sec.  1951.57(e) 
of this chapter.
    (ii) Ordinarily, when deposits are made from funds which are 
received as the result of consent or subordination agreements or 
assignments of income, the check should be drawn to the order of the 
financial institution in which the supervised bank account is 
established or jointly to the order of the borrower and the FmHA or its 
successor agency under Public Law 103-354. All such checks should be 
delivered or mailed to the District or County Office.
    (3) If direct or insured loan funds (other than OL or EM, loan 
funds) or borrower contributions are to be deposited in a supervised 
bank account, such funds will be deposited on the date of loan closing 
after it has been determined that the loan can be closed. However, if it 
is impossible to deposit the funds on the day the loan is closed due to 
reasons such as distance from the financial institution or banking 
hours, the funds will be deposited on the first banking day following 
the date of loan closing.
    (4) Grant funds will be deposited when such funds are delivered.
    (5) When funds from any source are deposited by FmHA or its 
successor agency under Public Law 103-354 personnel in a supervised bank 
account, a deposit slip will be prepared in an original and two copies 
and distribution as follows: Original to the financial institution, one 
copy to the borrower, and one copy for the borrower's case folder. The 
names of the borrower, the sources of funds, and ``Subject to FmHA or 
its successor agency under Public Law 103-354 Countersignature,'' and if 
applicable, the account number will be entered on each deposit slip.
    (6) A loan or grant check drawn on the U.S. Treasury may be 
deposited in a supervised bank account without endorsement by the 
borrower when it will facilitate delivery of the check and is acceptable 
to the financial institution. The borrower will be notified immediately 
of any deposit made and will be furnished a copy of the deposit slip. 
When a deposit of this nature is made, the following endorsement will be 
used:

    For deposit only in the supervised bank account of (name of 
borrower) in the (name of financial institution and address when 
necessary for identification) pursuant to Deposit Agreement dated ------
--.

    (7) Accounts established through the use of Interest-Bearing Deposit 
Agreement will be in the name of the depositor and the Government.
    (b) Deposits by borrowers. Funds in any form may be deposited in the 
supervised bank account by the borrower if authorized by FmHA or its 
successor agency under Public Law 103-354 provided the financial 
institution has agreed that when a deposit in made to the account by 
other than FmHA or its successor agency under Public Law 103-354 
personnel, the financial institution will promptly deliver or mail a 
copy of the deposit slip to the FmHA or its successor agency under 
Public Law 103-354 District or County Office.
    (1) A loan or grant check drawn on the U.S. Treasury may be 
deposited in a supervised bank account by a borrower, provided the 
following endorsement is used and is inserted thereon prior to delivery 
to the borrower for signature:

    For deposit only in my supervised bank account in the (name of 
financial institution and address when necessary for identification) 
pursuant to Deposit Agreement dated --------.

    (2) Funds other than loan or grant funds may be deposited by the 
borrower in those exceptional instances where an agreement is reached 
between the District Director or County Supervisor and the borrower, 
whereby the borrower will make deposits of income

[[Page 65]]

from any source directly into the supervised bank account. In such 
instances the borrower will be instructed to prepare the deposit slip in 
the manner described in Sec.  1902.9(a)(5).



Sec.  1902.10  Withdrawals.

    (a) The District Director or County Supervisor will not countersign 
checks on the supervised bank account for the use of funds unless the 
funds deposited by the borrower from other sources were cash deposits, 
or checks which the District Director or County Supervisor knows to be 
good, or until the deposit checks have cleared.
    (b) Withdrawals of funds deposited under the applicable deposit 
agreement are permitted only by order of the borrower and 
countersignature of authorized FmHA or its successor agency under Public 
Law 103-354 personnel, or upon written demand on the financial 
institution by the State Director.
    (c) Upon withdrawal or maturity of interest-bearing accounts 
established through the use of an Interest-Bearing Deposit Agreement, 
such funds will be credited to the supervised bank account established 
through the use of Form FmHA or its successor agency under Public Law 
103-354 402-1.
    (d) The issuance of checks on the supervised bank account will be 
kept to the minimum possible without defeating the purpose of such 
accounts. When major items of capital goods are being purchased, or a 
limited number of relatively costly items of operating expenses are 
being paid, or when debts are being refinanced, the checks will be drawn 
to the vendors or creditors. If minor capital items are being purchased 
or numerous items of operating and family living expenses are involved 
as in connection with a monthly budget, a check may be drawn to the 
borrower to provide the funds to meet such costs.
    (1) A check will be issued payable to the appropriate payee but will 
never be issued to ``cash.'' The purpose of the expenditure will be 
clearly shown on Form FmHA or its successor agency under Public Law 103-
354 402-2 and indicated on the fact of the check. When checks are drawn 
in favor of the borrower to cover items too numerous to identify, the 
expenditure will be identified on the check, as ``miscellaneous.''
    (2) Normally, OL and EM loan funds will not be withdrawn from the 
supervised bank account until the lien search has been made and a 
determination reached that the required security has been obtained. This 
applies also to withdrawal of funds in secured individual loan cases. 
However, in those instances when the applicant is unable to pay for the 
lien search and filing fees from personal funds, a check for this 
purpose may be drawn on the supervised bank account to meet these loan 
making requirements.
    (3) Ordinarily, a check will be countersigned before it is delivered 
to the payee. However, in justifiable circumstances such as when 
excessive travel on the part of the borrower, District Director of 
County Supervisor would be involved, or purchase would be prevented, and 
the borrower can be relied upon to select goods and services in 
accordance with the plans, a check may be delivered to the payee by the 
borrower before being countersigned.
    (i) When a check is to be delivered to the payee before being 
countersigned, the District Director or County Supervisor must make it 
clear to the borrower and to the payee, if possible, that the check will 
be countersigned only if the quantity and quality of items purchased are 
in accordance with approved plans.
    (ii) Checks delivered to the payee before countersignature will bear 
the following legend in addition to the legend for countersignature: 
``Valid only upon countersignature of Farmers Home Administration or its 
successor agency under Public Law 103-354.''
    (iii) The check must be presented by the payee or a representative 
to the District or County Office of the FmHA or its successor agency 
under Public Law 103-354 servicing the account for the required 
countersignature.
    (iv) Such check must be accompanied by a bill of sale, invoice, or 
receipt signed by the borrower identifying the nature and cost of goods 
or services purchased or similar information must be indicated on the 
check.
    (4) For real estate loans or grants, whether the check is delivered 
to the payee before or after countersignature,

[[Page 66]]

the number, and date of the check will be inserted on all bills of sale, 
invoices, receipts, and itemized statements for materials, equipment, 
and services.
    (5) Bills of sale, and so forth, may be returned to the borrower 
with the canceled check for the payment of the bill.
    (6) Checks to be drawn on a supervised bank account will bear the 
legend:

Countersigned, not as co-maker or endorser.
________________________________________________________________________

                                 (Title)

________________________________________________________________________

  Farmers Home Administration or its successor agency under Public Law 
                                 103-354

[46 FR 36106, July 14, 1981, as amended at 54 FR 47959, Nov. 20, 1989]



Sec.  1902.11  District and county office records.

    A record of funds deposited in a supervised bank account will be 
maintained on Form FmHA or its successor agency under Public Law 103-354 
402-2 in accordance with the FMI. The record of funds provided for 
operating purposes by another creditor or grantor will be on a separate 
Form FmHA or its successor agency under Public Law 103-354 402-2 so that 
they can be clearly identified.

[46 FR 36106, July 14, 1981, as amended at 51 FR 12308, Apr. 10, 1986]



Sec. Sec.  1902.12-1902.13  [Reserved]



Sec.  1902.14  Reconciliation of accounts.

    (a) A checking account statement will be obtained periodically in 
accordance with established practices in the area. If the checking 
account statement does not include sufficient information to reconcile 
the account (the name of the payee or the check number and the amount of 
each check, i.e., a negotiable demand draft drawn on a financial 
institution), the original cancelled check or either a microfilm copy or 
other reasonable facsimile of the cancelled check must be provided to 
the District or County Office with the statement. Checking account 
statements will be reconciled promptly with District or County Office 
records. The person making the reconciliation will initial the record 
and indicate the date of the action.
    (b) All checking account statements and, if necessary, original 
cancelled checks or either a microfilm copy or other reasonable 
fascimile of the cancelled checks will be forwarded immediately to the 
borrower when bank statements and District or County Office records are 
in agreement. If a transmittal is used, Form FmHA or its successor 
agency under Public Law 103-354 140-4, ``Transmittal of Documents,'' is 
prescribed for that purpose.
    (c) If the Financial Institution did not return the original 
cancelled check(s) to the Agency with the statements, and FmHA or its 
successor agency under Public Law 103-354 has a need for the original 
cancelled check(s) the Financial Institution, upon request by the 
Agency, will furnish to the Agency the requested original cancelled 
check(s) or a certified microfilmed copy or other reasonable certified 
facsimile of the cancelled check(s) and will provide this service to the 
Farmers Home Administration or its successor agency under Public Law 
103-354 with no fees being assessed the Agency or the Depositor's 
account for the service.

[53 FR 35671, Sept. 14, 1988, as amended at 55 FR 21524, May 25, 1990]



Sec.  1902.15  Closing accounts.

    When FmHA or its successor agency under Public Law 103-354 loan or 
grant funds and those of any other lender or grantor have all been 
properly expended or withdrawn, Form FmHA or its successor agency under 
Public Law 103-354 402-6 may be used to give FmHA or its successor 
agency under Public Law 103-354's consent (and of another lender or 
grantor, if involved) to close the supervised bank account in the 
following situations:
    (a) When FmHA or its successor agency under Public Law 103-354 loan 
funds in the supervised bank account of a borrower have been reduced to 
$100 or less, and a check for the unexpended balance has been issued to 
the borrower to be used for authorized purposes.
    (b) For all loans accounts, except loans listed in Sec.  1902.15(c) 
of this section, after completion of authorized

[[Page 67]]

loan funds expenditures, and after promptly refunding any remaining 
unexpended loan funds on the borrower's loan account with FmHA or its 
successor agency under Public Law 103-354 or another lender, as 
appropriate.
    (c) For Community Facility, Water and Waste Disposal, Watershed 
(WS), Organizational Rural Rental Housing (RRH), Resource Conservation 
and Development (RCD), EO loans to a Cooperative Association, Rural 
Cooperative Housing (RCH), or Organizational Labor Housing (LH) loan and 
grant accounts, when the funds have been expended in accordance with the 
requirements of part 1942 subpart A, the supervised bank account will be 
closed within 90 days following completion of development, unless an 
extension of time is authorized in writing by the District Director. If 
the borrower will not agree to close the account, the District Director 
or County Supervisor will request the State Director to make demand upon 
the financial institution in accordance with Sec.  1902.16.
    (d) Promptly upon death of a borrower, except when the loan is being 
continued with a joint debtor, when a borrower is in default and it is 
determined that no further assistance will be given, or when a borrower 
is no longer classified as ``active.''
    (1) Deceased borrowers. (i) Ordinarily, upon notice of the death of 
a borrower, the District Director or the County Supervisor will request 
the State Director to make demand upon the bank for the balance on 
deposit and apply all the balance after payment of any bank charges to 
the borrower's FmHA or its successor agency under Public Law 103-354 
indebtedness. When the State Director approves continuation with a 
survivor, the supervised bank account of deceased borrower may be 
continued with a remaining joint debtor who is liable for the loan and 
agrees to use the unexpended funds as planned, provided:
    (A) The account is a joint survivorship supervised bank account, or
    (B) If not a joint survivorship account, the financial institution 
will agree to permit the addition of the surviving joint debtor's name 
to the existing signature card and the appropriate Deposit Agreement and 
continue to disburse checks out of the existing account upon FmHA or its 
successor agency under Public Law 103-354's countersignature and the 
joint debtor's signature in place of the deceased borrower, or
    (C) The financial institution will permit the State Director to 
withdraw the balance from the existing supervised bank account with a 
check jointly payable to the FmHA or its successor agency under Public 
Law 103-354 and the surviving joint debtor and deposit the money in a 
new supervised bank account with a surviving joint debtor, and will 
disburse checks from this new account upon the signature of such 
survivor and the countersignature of an authorized FmHA or its successor 
agency under Public Law 103-354 official.
    (ii) The State Director, before applying the balance remaining in 
the supervised bank account to the FmHA or its successor agency under 
Public Law 103-354 indebtedness, is authorized upon approval by the 
Office of the General Counsel (OGC) to refund any unobligated balances 
of funds from other lenders to the FmHA or its successor agency under 
Public Law 103-354 borrower for specific operating purposes in 
accordance with subordination agreements or other arrangements between 
the FmHA or its successor agency under Public Law 103-354, the lender 
and the borrower.
    (iii) The State Director, upon the recommendation of an authorized 
representative of the estate of the deceased borrower and the approval 
of the OGC, is authorized to approve the use of deposited funds for the 
payment of commitments for goods delivered or services performed in 
accordance with the deceased borrower's plans approved by FmHA or its 
successor agency under Public Law 103-354.
    (2) Borrowers in default. Whenever it is impossible or impractical 
to obtain a signed check from a borrower whose supervised bank account 
is to be closed, the District Director or County Supervisor will request 
the State Director to make demand upon the financial institution for the 
balance on deposit in the borrower's supervised bank account for 
application as appropriate:

[[Page 68]]

    (i) To the borrower's FmHA or its successor agency under Public Law 
103-354 indebtedness, or
    (ii) As refunds of any unobligated advance provided by other lenders 
which were deposited in the account, or
    (iii) For the return of FmHA or its successor agency under Public 
Law 103-354 grant funds to the FmHA or its successor agency under Public 
Law 103-354 Finance Office, or
    (iv) For the return of grant funds to other grantors.
    (3) Inactive borrowers. An inactive borrower is one whose loan has 
not been paid in full, but is no longer classified as ``active.''
    (4) Paid up borrowers. A paid-up borrower is one who has a balance 
remaining in the supervised bank account and has repaid the entire 
indebtedness to FmHA or its successor agency under Public Law 103-354 
and has properly expended all funds advanced by other lenders. In such 
cases the District Director or County Supervisor will (i) notify the 
borrower in writing that the interests in the account of FmHA or its 
successor agency under Public Law 103-354 have been terminated, and (ii) 
inform the borrower of the balance remaining in the supervised bank 
account.

[46 FR 36106, July 14, 1981, as amended at 53 FR 231, Jan. 6, 1988; 54 
FR 47196, Nov. 13, 1989; 66 FR 1569, Jan. 9, 2001]



Sec.  1902.16  Request for withdrawals by State Director.

    When the State Director is requested to make written demand upon the 
financial institution for the balance on deposit in the supervised bank 
account, or any part thereof, the request will be accompanied by the 
following information.
    (a) Name of borrower as it appears on the applicable Deposit 
Agreement.
    (b) Name and location of financial institution.
    (c) Amount to be withdrawn for refund to another lender of any 
balance that may remain of funds received by the borrower from such 
lender as a loan or grant, or under a subordination agreement or other 
arrangement between the FmHA or its successor agency under Public Law 
103-354, the other lender, and the borrower.
    (d) Amount to be withdrawn, excluding any service charges, for a 
refund of FmHA or its successor agency under Public Law 103-354's.
    (e) Other pertinent information including reasons for the 
withdrawal.



Sec. Sec.  1902.17-1902.49  [Reserved]



Sec.  1902.50  OMB control number.

    The reporting and recordkeeping requirements contained in this 
regulation have been approved by the Office of Management and Budget and 
have been assigned OMB control number 0575-0158. Public reporting burden 
for this collection of information is estimated to vary from 5 minutes 
to 1\1/2\ hours per response, with an average of 0.42 hours per 
response, including time for reviewing instructions, searching existing 
data sources, gathering and maintaining the data needed, and completing 
and reviewing the collection of information. Send comments regarding 
this burden estimate or any other aspect of this collection, including 
suggestions for reducing this burden, to Department of Agriculture, 
Clearance Officer, OIRM, room 404-W, Washington, DC 20250; and to the 
Office of Management and Budget, Paperwork Reduction Project (OMB 
0575-0158), Washington, DC 20503.

[59 FR 3778, Jan. 27, 1994]

             Exhibit A to Subpart A of Part 1902 [Reserved]

   Exhibit B to Subpart A of Part 1902 --United States Department of 
 Agriculture, Farmers Home Administration or Its Sucessor Agency Under 
         Public Law 103-354--Interest-Bearing Deposit Agreement

    BECAUSE certain funds of ---------- referred to as the 
``Depositor,'' are now on deposit with the ----------, referred to as 
the ``Financial Institution,'' under a Deposit Agreement, dated --------
--, 19----, providing for supervision by the United States of America, 
acting through the Farmers Home Administration or its successor agency 
under Public Law 103-354, referred to as the ``Government,'' which 
Deposit Agreement grants to the Government security and/or other 
interest in the funds covered by that Deposit Agreement, and

[[Page 69]]

    BECAUSE certain of these funds are not now required for immediate 
disbursement and it is the desire of the Depositor to place these funds 
in interest-bearing deposits with the Financial Institution:
    THEREFORE, the Depositor and the Government authorize and direct the 
Financial Institution to place -------- Dollars ($-------- ) of the 
funds subject to that Deposit Agreement in interest-bearing deposits as 
follows:

    $ -------- for a period of ---------- months at ---------- % 
interest.
    $ -------- for a period of ---------- months at ---------- % 
interest.
    $ -------- for a period of ---------- months at ---------- % 
interest.

    These interest-bearing deposits and the income earned on them at all 
times shall be considered a part of the account covered by said Deposit 
Agreement except that the right of the Depositor and the Government to 
jointly withdraw all or a portion of the funds in the account covered by 
the Deposit Agreement by an order of the Depositor countersigned by a 
representative of the Government, and the right of the Government to 
make written demand for the balance or any portion of the balance, is 
modified by the above time deposit maturity schedule. The evidence of 
such time deposits shall be issued in the names of the Depositor and the 
Farmers Home Administration or its successor agency under Public Law 
103-354.
    A copy of this Agreement shall be attached to and become a part of 
each certificate, passbook, or other evidence of deposit that may be 
issued to represent such interest-bearing deposits.
    Executed this -------- day of --------, 19----.
UNITED STATES OF AMERICA
By:_____________________________________________________________________

County Supervisor
Farmers Home Administration or its successor agency under Public Law 
103-354
U.S. Department of Agriculture

________________________________________________________________________
(Depositor)

By:_____________________________________________________________________

Title:__________________________________________________________________
    Accepted on the above terms and conditions this -------- day of ----
----, 19----.

________________________________________________________________________

(Financial Institution)

________________________________________________________________________

(Office or Branch)

By:_____________________________________________________________________

Title:__________________________________________________________________

[53 FR 35671, Sept. 14, 1988; 55 FR 21524, May 25, 1990]

Subparts B-C [Reserved]

        PART 1904_LOAN AND GRANT PROGRAMS (INDIVIDUAL) [RESERVED]



PART 1910_GENERAL--Table of Contents




             Subpart A_Receiving and Processing Applications

Sec.
1910.1 General.
1910.2 Equal Credit Opportunity Act (ECOA) and Regulation B.
1910.3 Receiving applications.
1910.4 Processing applications.
1910.5 Evaluating applications.
1910.6-1910.9 [Reserved]
1910.10 Preference.
1910.11 Special requirements.
1910.12-1910.49 [Reserved]
1910.50 OMB control number.

Exhibit A to Subpart A [Reserved]
Exhibit B to Subpart A--Letter To Notify Socially Disadvantaged 
          Applicant(s)/Borrower(s) Regarding the Availability of Direct 
          Farm Ownership (FO) Loans and the Acquisition/Leasing of FmHA 
          or Its Successor Agency Under Public Law 103-354 Acquired 
          Farmland
Exhibit C to Subpart A--Letter To Notify Applicant(s)/Borrower(s) of 
          Their Responsibilities in Connection With FmHA or Its 
          Successor Agency Under Public Law 103-354 Farmer Program Loans 
          [Note]

                  Subpart B_Credit Reports (Individual)

1910.51 Purpose.
1910.52 [Reserved]
1910.53 Policy.
1910.54-1910.100 [Reserved]

                   Subpart C_Commercial Credit Reports

1910.101 Preface.
1910.102-1910.150 [Reserved]

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.

    Source: 43 FR 56643, Dec. 4, 1978, unless otherwise noted.



             Subpart A_Receiving and Processing Applications

    Source: 53 FR 35671, Sept. 14, 1988, unless otherwise noted.

[[Page 70]]



Sec.  1910.1  General.

    This subpart prescribes the policies and procedures for informing 
interested parties of the Farm Credit loan programs available through 
the Farm Service Agency (FSA), and how such requests are processed. 
Requests for Nonprogram (NP) assistance will be handled in accordance 
with subpart J of part 1951 of this chapter. References contained herein 
to the housing programs of the Rural Housing Service (RHS), or its 
successor agency, are no longer applicable.
    (a) The County Supervisor will provide information about FSA and RHS 
services to all persons making inquiry about FSA and RHS programs. This 
information may be provided by individual interviews, correspondence, or 
distribution of pamphlets, leaflets, and appropriate FSA and RHS 
regulations.
    (b) Wherever the term ``applicant'' appears in this subpart, it 
shall be construed to mean applicant and/or co-applicant, if any.
    (c) FmHA forms are available in any Rural Development (RD) or FSA 
office.
    (d) The terms ``interest credit'' and ''interest credit 
assistance,'' as they relate to Single Family Housing (SFH), are 
interchangeable with the term ``payment assistance.'' Payment assistance 
is the generic term for the subsidy provided to eligible SFH borrowers 
to reduce mortgage payments.
    (e) As used in this subpart in relation to Farm Credit Programs 
loans, Agency means the Farm Service Agency, its county and State 
committees and their personnel, and any successor agency.
    (f) As used in this subpart, the abbreviation ``Lo-Doc'' means Low-
Documentation and the abbreviation ``OL'' means Operating Loan.

[53 FR 35671, Sept. 14, 1988, as amended at 55 FR 21524, May 25, 1990; 
55 FR 29560, July 20, 1990; 56 FR 66959, Dec. 27, 1991; 58 FR 44263, 
Aug. 20, 1993; 58 FR 52646, Oct. 12, 1993; 60 FR 55122, Oct. 27, 1995; 
61 FR 35919, July 9, 1996; 61 FR 59777, Nov. 22, 1996; 62 FR 9353, Mar. 
3, 1997; 66 FR 1572, Jan. 9, 2001]



Sec.  1910.2  Equal Credit Opportunity Act (ECOA) and Regulation B.

    ECOA as amended, prohibits discrimination in credit based on sex, 
marital status, race, color, religion, natural origin, age (provided the 
applicant has the capacity to contract), because all or part of the 
applicant's income is derived from public assistance of any kind, or 
because the applicant has, in good faith, exercised any right under the 
Consumer Credit Protection Act. These shall hereafter be referred to in 
this subpart as ``ECOA prohibited bases.'' It is the policy of the 
Farmers Home Administration or its successor agency under Public Law 
103-354 that assistance and services shall not be denied to any person 
or applicant as a result of race, sex, national origin, color, religion, 
marital status, age, receipt of income from public assistance, or 
because the applicant has, in good faith, exercised any right under the 
Consumer Credit Protection Act.



Sec.  1910.3  Receiving applications.

    Applications for FSA or RHS assistance will ordinarily be filed in 
the County Office serving the area in which the farm, dwelling, 
business, or other facility for which financing is being requested is or 
will be located.
    (a) All persons applying for FSA or RHS assistance who are not 
indebted to FSA or RHS must file a written application. All persons 
wishing to submit an application will be encouraged to do so. No oral or 
written statement will be made to applicants or prospective applicants 
that would discourage them from applying for assistance, based on any 
ECOA ``prohibited bases.'' The filing of written applications will be 
encouraged even though funds may not be currently available, since 
complete applications must be considered in the date order received, 
except when program regulations or Veteran status provides for 
preference. Applications will normally be handled as follows:
    (1) Form FmHA 410-4, ``Application for Rural Housing Assistance 
(NonFarm Tract),'' will be used by applicants for RH loans on nonfarm 
tracts who depend primarily on off-farm income.
    (2) Form FmHA 410-1, ``Application for FmHA Services,'' will be used 
by all other applicants. These include persons applying for RH loans on 
farms or nonfarm tracts who derive a major portion of their income from 
farming. For EM

[[Page 71]]

loans, it is also necessary for the applicant to complete Form FmHA 
1945-22, ``Certification of Disaster Losses.''
    (3) SF 424.2, ``Application for Federal Assistance (For 
Construction),'' with the requirements outlined in the applicable 
program exhibits will be used by all applicants applying for LH loans.
    (4) The Right to Financial Privacy Act of 1978, Title XI of Pub. L. 
95-630, requires that:
    (i) Except as specified in paragraph (a)(4)(ii) of this section, 
within 3 days of the receipt of an application for a loan or grant from 
an individual or a partnership of five or fewer members, the RD office 
will forward Form FmHA 410-7, ``Notification to Applicant on Use of 
Financial Information from Financial Institution,'' to those applicants.
    (ii) For a labor housing application filed by an individual or a 
partnership of five or fewer members, the RD office will comply with 
paragraph (a)(4)(i) of this section only if it is determined that 
financial information will be requested from any financial institution.
    (5) All individual loan applicants will sign Form FmHA or its 
successor agency under Public Law 103-354 410-9, ``Statement Required by 
the Privacy Act.'' A signed copy will remain with the application. No 
application is complete without a signed Form FmHA or its successor 
agency under Public Law 103-354 410-9 on file.
    (6) Information regarding race, national origin, sex, and marital 
status is needed for monitoring purposes for all applications filed for 
assistance to finance residential real estate and direct FO loans when 
the loan is to be secured by a lien on the property. In those cases, 
FmHA or its successor agency under Public Law 103-354 will request the 
applicant and/or co-applicant to furnish that information on the 
application on a voluntary basis. The application form will indicate 
that this information is provided on a voluntary basis.
    (7) Applicants are asked to identify any known relationship or 
association with an FmHA or its successor agency under Public Law 103-
354 employee when completing the application. When there is a 
relationship or association, the processing official must complete the 
action required under subpart D of part 1900 of this chapter.
    (b) Requests by FmHA or its successor agency under Public Law 103-
354 borrowers for additional assistance will be submitted as prescribed 
by each loan/grant program, and the following:
    (1) All applicants must provide their taxpayer's identification 
number with their applications, except as noted in paragraph (i) of this 
section.
    (2) RH applicants who have a current Form FmHA or its successor 
agency under Public Law 103-354 1944--3, ``Budget and/or Financial 
Statement'', or Form FmHA or its successor agency under Public Law 103-
354 410-4, and who are presently indebted to FmHA or its successor 
agency under Public Law 103-354, will be required to complete only the 
following items of Form FmHA or its successor agency under Public Law 
103-354 410-4 (if other information about their current status is not 
available for adequate processing of their applications, these 
applicants should fully complete Form FmHA or its successor agency under 
Public Law 103-354 410-4):
    (i) Name.
    (ii) Social Security Number.
    (iii) Loan purpose.
    (iv) Planned income for next 12 months.
    (v) Date and signature of the application.
    (3) Farmer Program applicants who are presently indebted to FmHA or 
its successor agency under Public Law 103- 354 will be required to 
complete Form FmHA or its successor agency under Public Law 103-354 410-
1. When application is made within 60 days of the date of table A, 
``Balance sheet,'' on Form FmHA or its successor agency under Public Law 
103-354 431-2, ``Farm and Home Plan,'' and there are no significant 
changes that would affect eligibility, reference to table A of Form FmHA 
or its successor agency under Public Law 103-354 431-2 can be made in 
Item 17, ``Financial Statement as of Date of Application,'' of Form FmHA 
or its successor agency under Public Law 103-354 410-1.
    (4) Applicants for EM loans with new losses from disaster, as 
authorized under EM regulations, must also complete Form FmHA or its 
successor

[[Page 72]]

agency under Public Law 103-354 1945-22 in addition to the other 
required forms.
    (c) County Office employees will be responsible for receiving loan 
applications and giving a preliminary explanation of services available 
through FmHA or its successor agency under Public Law 103-354. An 
explanation of the types of assistance available should be given 
whenever it is not clear to the applicant what type of loan or grant 
will meet the applicant's needs. The employee receiving the application 
will make sure that it is properly completed, dated and signed, and will 
give whatever assistance is necessary. An applicant may apply for and 
maintain a loan account using a birth-given first name and a birth-given 
surname, or the spouse's surname, or a combination of surnames. Married 
persons may apply as individuals. In the case of a joint application for 
other than a farmer program loan, the persons requesting the assistance 
will designate who is listed as ``applicant'' and who is listed as ``co-
applicant.'' For farmer program loans, there will be only one applicant. 
If a husband and wife insist on applying as co-applicants for a farmer 
program loan and the farming operation is a sole proprietorship, they 
will be considered a joint operation and they both will have to meet the 
eligibility requirements applicable to the joint operation. County 
Office employees must explain to husbands and wives that they both do 
not need to apply for farmer program loans unless they desire to do so 
or the application is for an entity operation. If they apply together 
for a loan, it must be explained that they will be considered as a joint 
operation. When the use of veteran's preference is involved, the 
identity of the veteran must be properly documented if the name used in 
the application differs from that shown on the veteran's evidence of 
eligibility.
    (d) Information will be obtained about household members or others, 
including cosigners, as required by program regulations needed to 
determine eligibility for the requested assistance. A cosigner will be 
required only when it has been determined that the applicant cannot 
possibly meet the repayment or the security requirements for the loan 
request. When a co-signer will be required, the applicant will be 
requested to identify their choice of co-signer. An applicant will also 
be required to provide information concerning a co-signer, spouse or 
former spouse, who will not be a co-signer, or who is not a member of 
the household, when the applicant is relying on the co-signer, alimony, 
child support, separate maintenance from that spouse or former spouse as 
a basis for repayment, or receipt of such payments will be considered 
for eligibility. In such cases, information regarding the co-signer's, 
spouse's or former spouse's financial resources may be requested. Only 
information regarding the receipt and dependability of income from 
alimony, child support, or separate maintenance, provided by a former 
spouse, may be requested, considered, and verified to determine 
eligibility and repayment ability.
    (e) Signature requirements on the Promissory Note will be as needed 
to assure repayment of the indebtedness and as set out in the loan 
making regulations. The spouse of an applicant will not be required to 
sign the note unless the spouse's signature on the note is required to 
create a security interest or the spouse is a co-applicant. Signature 
requirements on the Mortgage or Deed of Trust will be sufficient to 
obtain the required lien, and to make the property being offered as 
security available to satisfy the debt in the event of default. FmHA or 
its successor agency under Public Law 103-354 State supplements will be 
issued to outline the requirements in accordance with State real 
property law. The State Director will obtain the advice of OGC prior to 
issuance of the State supplement.
    (f) If a spouse's signature would be necessary for FmHA or its 
successor agency under Public Law 103-354 to obtain the necessary 
security, information regarding an applicant's marital status will be 
obtained. Only the terms ``married'' and ``separated'' may be used to 
designate marital status. ``Unmarried'' includes single, divorced, or 
widowed persons.
    (g) FmHA or its successor agency under Public Law 103-354 may not 
request information concerning birth

[[Page 73]]

control practices, intentions concerning the bearing or rearing of 
children, or capability to bear children. Assumptions or aggregate 
statistics relating to the likelihood or probability that any particular 
group of persons will bear or rear children will not be used to evaluate 
creditworthiness, or for any other purpose; nor will the assumption be 
made that, for that reason, an applicant will receive diminished or 
interrupted income in the future.
    (h) If after discussing credit needs, it appears that the applicant 
may be able to obtain the necessary credit from some other source, the 
County Supervisor should provide information on the availability of such 
credit and provide the needed assistance in contacting that credit 
source. All applications, including those from applicants assisted in 
obtaining credit from other credit sources, will be listed and reported 
in accordance with FmHA or its successor agency under Public Law 103-354 
Instructions 1905-A and 2006-J which are available in all FmHA or its 
successor agency under Public Law 103-354 offices.
    (i) For all loans and grants, the applicant must furnish the 
applicant's taxpayer's identification number with the application, 
except as otherwise indicated in this paragraph. The taxpayer's 
identification number for individuals who are not business applicants is 
the Social Security Number (SSN). The taxpayer's identification number 
will be used as part of the borrower's case number, except as noted in 
paragraph (i)(3) of this section.
    (1) The SSN preceded by the State and county code numbers will 
constitute the borrower's case number to be used on all FmHA or its 
successor agency under Public Law 103-354 forms.
    (2) In the case of noncitizens who are permanent residents or on 
indefinite parole and who do not yet have a taxpayer's identification 
number, their applications will be filed; however, they will not be 
processed until the SSN is obtained. Disposition of applications not 
processed because of lack of the number will be as set forth in FmHA or 
its successor agency under Public Law 103-354 Instruction 2033-A, 
``Management of County Office Records,'' (available in any FmHA or its 
successor agency under Public Law 103-354 office).
    (3) The borrower's case number for residents of the Pacific Islands 
will be taxpayer's identification number issued by the Pacific Islands 
Government.
    (j) For all loans and credit sales secured by a first mortgage and 
involving the purchase of an existing 1 to 4 family unit, or purchase of 
a building site and construction of 1 to 4 family residential units, or 
FO loans involving tracts of 25 acres or less, whether made to an 
individual, corporation, partnership, joint operation, cooperative, 
association, or other entity, the booklet entitled ``Settlement Costs'' 
will be hand-delivered to the applicant when the completed application 
is received, or mailed to the applicant within three (3) business days 
after receipt of the application in the County Office.
    (1) Form FmHA or its successor agency under Public Law 103-354 440-
58, ``Estimate of Settlement Costs,'' will be completed by the County 
Supervisor and delivered to the applicant with the booklet.
    (2) A record of the date and method of delivery of the booklet and 
Form FmHA or its successor agency under Public Law 103-354 440-58 will 
be kept in the running record section of the applicant's/borrower's 
County Office case folder.
    (k) For loans, assumptions and credit sales to individuals for 
household purposes that are subject to the Real Estate Settlement 
Procedures Act (RESPA), Form FmHA or its successor agency under Public 
Law 103-354 1940-41, ``Truth in Lending Disclosure Statement,'' will be 
completed using ``good-faith'' estimates, and will be delivered or 
placed in the mail to the applicant within 3 business days of receipt of 
the written application in the County Office.
    (l) Fees for the total amount charged for individual credit reports 
as indicated in exhibit A of subpart B of part 1910 of this chapter 
(available in any FmHA or its successor agency under Public Law 103-354 
office) will be collected from the loan applicants before credit reports 
are ordered, except in the case of section 504 loan applicants

[[Page 74]]

and section 502 Rural Housing Loan applicants whose requested loan will 
likely not exceed $7,500. It is the policy not to order credit reports 
for Rural Housing loans of $7,500, or less, but if the County Supervisor 
determines that a credit report is necessary, it will be ordered at no 
cost to the loan applicant as provided for in Sec.  1910.53(g) of 
subpart B of part 1910 of this chapter.

[53 FR 35671, Sept. 14, 1988, as amended at 54 FR 11365, Mar. 20, 1989; 
55 FR 21524, May 25, 1990; 56 FR 66959, Dec. 27, 1991; 58 FR 226, Jan. 
5, 1993; 58 FR 44263, Aug. 20, 1993; 61 FR 35919, July 9, 1996; 62 FR 
9353, Mar. 3, 1997]



Sec.  1910.4  Processing applications.

    When obtaining information concerning applicants and evaluating 
their qualifications, FmHA or its successor agency under Public Law 103-
354 personnel will be covered by the provisions of ECOA and the 
established policies for the various types of assistance offered by FmHA 
or its successor agency under Public Law 103-354. If a farm is situated 
in more than one State, County or Parish, the loan will be processed in 
the State, County or Parish where the applicant's principal residence on 
the farm is located. If the applicant's residence is not located on the 
farm or if the applicant is a corporation, cooperative, partnership or 
joint operation, the loan will be processed by the County Office serving 
the County in which the farm or a major portion of the farm is located, 
unless otherwise approved by the State Office. Applications of FmHA or 
its successor agency under Public Law 103-354 employees, members of 
their families, close relatives, or business or close personal 
associates are processed according to subpart D of part 1900 of this 
chapter.
    (a) Completed RH applications. Completed applications are those as 
described in Sec.  1944.27 (copies available in any REDC office), and 
all applications for Rural Housing loans will be processed as outlines 
in that instruction.
    (b) Completed Farm Loan Programs applications and additional FSA 
responsibilities. All persons requesting an application will be provided 
exhibit A (available in any office). The County Supervisor will provide 
assistance as necessary to help applicants complete their applications. 
Complete applications will be processed in the order of date received, 
except as outlined in Sec.  1910.10 of this subpart. If the application 
is complete when it is first received, a County Office official will 
stamp the filing date on the front of Form FmHA 410-1 and enter the date 
in the ``Application Received'' and ``Application Completed'' fields in 
the Application Processing Module of the Management Records Systems 
(MRS.) On the date all information necessary to process an application 
is received, a County Office official will send the applicant FmHA Guide 
Letter 1910-A-3 (available in any office) notifying the applicant that 
the application is considered complete. The date entered in the 
``Application Completed'' field in the Application Processing Module of 
MRS will establish the 30-day and 60-day timeframes for determining 
eligibility and loan approval/disapproval, respectively. The County 
Supervisor will verify the information furnished by the applicant, and 
record and assemble additional information needed to properly evaluate 
the applicant's qualifications and credit needs. Additional information 
may be obtained and verified by County Office records, personal 
contacts, and visits to the applicant's operation. Applicants who 
request a waiver of the direct OL term limits in accordance with subpart 
A of part 1941 of this chapter based on the facts that their land is 
subject to the jurisdiction of an Indian tribe and their loan is secured 
by one or more security instruments subject to the jurisdiction of an 
Indian tribe, automatically consent to the Agency releasing information 
as necessary to the Bureau of Indian Affairs to confirm these facts. A 
complete Farm Loan Programs application requires fulfillment of both the 
applicant and FSA responsibilities, except as provided in paragraph (c) 
of this section. Once this information is received and the application 
is considered complete, FSA has additional responsibilities before loan 
approval is determined. The various responsibilities are as follows:

[[Page 75]]

         Applicant's Responsibilities for a Complete Application

    (1) Completed Form FmHA 410-1, ``Application for FmHA Services,'' 
including a signed Form FmHA 410-9, ``Statement Required by the Privacy 
Act.''
    (2) If the applicant is a cooperative, corporation, partnership, 
joint operation, trust, or limited liability company:
    (i) A complete list of entity members showing the address, 
citizenship, principal occupation, and the number of shares and 
percentage of ownership or of stock held in the entity by each member, 
or the percentage of interest in the entity held by each member.
    (ii) A current personal financial statement from each member of the 
entity.
    (iii) A current financial statement from the entity itself.
    (iv) A copy of the entity's charter or any entity agreement, any 
articles of incorporation and bylaws, any certificate or evidence of 
current registration (good standing), and a resolution(s) adopted by the 
Board of Directors or entity members authorizing specified officers of 
the entity to apply for and obtain the desired loan and execute required 
debt, security, and other instruments and agreements.
    (3) A brief written description as to the farm training and/or 
experience of the applicant and the individual members of an entity 
applicant (new applicants only). If a waiver from the training required 
in Section 1924.74 of subpart B of part 1924 of this chapter is 
requested, provide verification of any courses taken which covered 
production and/or financial management concepts, and/or a statement 
explaining how the applicant's proven performance based on 5-year 
production records demonstrates production ability.
    (4) Supporting and documented verification that the applicant (and 
all members of an entity applicant) cannot obtain credit elsewhere, 
including a guaranteed loan.
    (5) Financial records for the past five years. Income tax records 
may be provided by the applicant when other financial records are not 
available.
    (6) Five years of production history immediately preceding the year 
of application, unless the applicant has been farming less than 5 years.
    (7) A brief written description of the proposed operation and the 
proposed size of the operation (required for new applicants and existing 
borrowers with significant changes in their operations).
    (8) Verification of off-farm employment, if any. This will be used 
only when the applicant is relying on off-farm income to pay part of the 
applicant's expenses.
    (9) Projected production, income and expenses, and loan repayment 
plan, which may be submitted on Form FmHA 431-2, ``Farm and Home Plan,'' 
or other similar plans of operation acceptable to FSA.
    (10) Applicable items required in exhibit M of subpart G of part 
1940 of this chapter including SCS Form CPA-026, ``Highly Erodible Land 
and Wetland Conservation Determination,'' Form AD-1026, ``Highly 
Erodible Land Conservation (HELC) and Wetland Conservation (WC) 
Certification,'' and Form FmHA 1940-20, as required by subpart G of part 
1940 of this chapter.
    (11) A legal description of farm, real estate property and/or (if 
applicable) a copy of any lease, contract, option or agreement entered 
into by the applicant which may be pertinent to consideration of the 
application, or when a written lease is not obtainable, a statement 
setting forth the terms and conditions of the agreement.
    (12) Form FmHA 440-32, ``Request for Statement of Debts and 
Collateral,'' when applicable.
    (13) Forms FmHA 1945-22, ``Certification of Disaster Losses,'' and 
FmHA 1940-38, ``Request for Lender's Verification of Loan Application,'' 
(EM loans only).

            FSA's Responsibilities for a Complete Application

    (14) Send Form FmHA 410-7, ``Notification to Applicant on Use of 
Financial Information from Financial Institution,'' to the applicant 
when applicable.
    (15) Form FmHA 1945-26, ``Calculation of Actual Losses'' (EM loans 
only).

[[Page 76]]

    (16) Credit reports as provided in subparts B and C of this part.
    (17) Form FmHA 1945-29, ``ASCS Verification of Farm Acreages, 
Production and Benefits,'' (EM loans only).
    (18) The Current/Past Debt Inquiry and Borrower Cross-Reference 
Systems. The Current/Past Debt Inquiry System must be reviewed for each 
application and copies of the screens must be attached to the 
applicant's file.

               Additional FSA Farm Credit Responsibilities

    (19) Form FmHA 1924-1, ``Development Plan,'' if necessary.
    (20) Form FmHA 1940-22, ``Environmental Checklist for Categorical 
Exclusions,'' or Class I and Class II assessment, whichever is 
applicable.
    (21) Real estate and chattel appraisal, when applicable.
    (22) Completion of the assessment in accordance with Sec.  1924.55.
    (c) Low-Documentation (Lo-Doc) Operating Loans:
    (1) To qualify for loan processing under Lo-Doc provisions, an 
applicant must:
    (i) Be current on all payments to all creditors including FSA (if an 
FSA borrower);
    (ii) Have not received primary loan servicing or disaster set-aside 
on any FSA debt within the past 5 years; and
    (iii) Meet one of the following criteria:
    (A) The loan requested is $50,000 or less and the total outstanding 
FSA operating loan debt at the time of loan closing will be less than 
$100,000; or
    (B) The loan is requested to pay annual operating expenses and the 
applicant is an existing FSA borrower who has received and repaid as 
scheduled, at least two previous annual operating loans from the agency.
    (2) A complete Lo-Doc OL application will consist of the items 
listed in paragraphs (b)(1), (b)(2), (b)(9), (b)(10), and (b)(16) of 
this section. The Agency may require a Lo-Doc applicant to submit any 
other information listed under paragraph (b) of this section as needed 
to make a determination on the loan application.
    (d) Notifying applicants that direct loan eligibility is subject to 
the unavailability of guaranteed financing. If the assessment, completed 
in accordance with Sec.  1924.55 concludes that guaranteed assistance 
may be available, with or without interest assistance, a prospectus will 
be sent to area lenders in accordance with Sec.  1951.262(f) as 
appropriate. If a lender indicates interest in providing financing with 
a Farm Credit Programs loan guarantee, refer to Sec.  1980.113(c) for 
handling as a market placement application. No direct loan to a current 
borrower will be approved until the process outlined in this paragraph 
has been concluded.
    (e) Incomplete Farm Credit Programs applications. (1) When an 
incomplete application is received, a County Office official will stamp 
the filing date on the front of Form FmHA 410-1, and enter the date in 
the ``Application Received'' and ``Incomplete Application'' fields in 
the Application Processing Module of MRS.
    (2) When an application that was received incomplete is completed, 
the date will be entered in the ``Application Completed'' field in the 
Application Processing Module of MRS. The County Supervisor will follow 
the requirements of paragraph (b) of this section.
    (3) Applicants who do not submit necessary information for complete 
applications, as described in paragraph (b) of this section, for EM, FO, 
OL and SW loans, will be handled as follows:
    (i) No later than 10 calendar days after receipt of the application, 
the County Supervisor will send the applicant a letter similar to FmHA 
Guide Letter 1910-A-1. The letter will:
    (A) List the additional information needed.
    (B) State that the application cannot be processed until all 
required information is received in the FmHA or its successor agency 
under Public Law 103-354 County Office.
    (C) Set a specific due date for the information. This date will be 
20 calendar days after the date of the letter.
    (ii) When information is needed from other USDA Agencies, the County 
Supervisor will inform those Agencies and the applicant of the 
information needed, and note the date of the request in the running 
record. For operating loan applications, the County Supervisor

[[Page 77]]

will request that the Agencies return the information to the County 
Office within 15 calendar days of the date of receipt of the request.
    (iii) If the necessary information has not been received from the 
applicant 20 calendar days after the date of the first written 
notification of an incomplete application, the County Supervisor will 
immediately send the applicant a letter similar to FmHA Guide Letter 
1910-A-2.
    (A) The letter will again list the additional information needed, 
and state that the application cannot be processed until all the 
required information is received.
    (B) The letter will set a due date of 10 calendar days from the date 
of the letter. It will further state that unless the applicant supplies 
the required information or contacts the County Office by that date, the 
application will be withdrawn without further notice.
    (C) This letter will contain the Equal Credit Opportunity Act (ECOA) 
statement set forth in Sec.  1910.6(b)(1) of this subpart.
    (D) A copy of this letter must be sent to the District Office at the 
same time it is sent to the applicant.
    (iv) If the applicant has not contacted the County Office by the due 
date set in the second notification letter, the County Supervisor will 
then withdraw the application.
    (v) All applications withdrawn will be handled in accordance with 
Sec.  2033.7 of FmHA Instruction 2033-A.
    (f) Notifying applicants (including presently indebted borrowers) 
about Limited Resource loans. Immediately after an application for OL, 
FO, SW, or EM assistance is received, the County Supervisor will send a 
letter similar to Guide Letter 1924-B-1 to the applicant telling the 
applicant about Limited Resource loans.
    (g) Notifying socially disadvantaged applicants regarding the 
availability of Direct Farm Ownership (FO) loans. Immediately after an 
application for FO assistance is received, the County Supervisor will 
send exhibit B of this subpart, ``Letter to Notify Socially 
Disadvantaged Applicants/Borrowers Regarding the Availability of 
Acquired Farmland,'' to the applicants. Exhibit B will also be presented 
to all socially disadvantaged individuals at the time they make their 
initial contact regarding Agency credit services. Socially disadvantaged 
applicants are defined in Sec.  1943.4 of subpart A of part 1943 of this 
chapter.
    (h) Notifying Borrowers about Farm Credit Programs (FCP) Borrower 
Responsibilities. When an application for OL, FO, SW or EM assistance is 
approved, the County Supervisor will provide to the borrower exhibit C 
of this subpart, ``Letter to Notify Applicant(s)/Borrower(s) of Their 
Responsibilities in Connection with FmHA Farmer Programs Loans.''
    (i) Determining eligibility. The Agency will determine eligibility 
of all Farm Credit Programs applicants including those who are already 
indebted for a Farm Credit Programs loan. The Farm Credit Programs 
application does not need to be complete before it is reviewed; however, 
all information relative to the eligibility decision must be received. 
The Rural Housing Service will determine eligibility for all RH loan 
applicants.
    (1) The Agency will certify whether or not the applicant meets the 
eligibility requirements and whether or not the applicant is a beginning 
farmer or rancher, as defined in the applicable Farm Credit Programs 
loan making regulation. An eligible Operating Loan (OL) or Farm 
Ownership (FO) Loan applicant, who is considered a beginning farmer or 
rancher, will have access to targeted funds. An eligible FO applicant 
requesting to purchase suitable farmland, who is considered a beginning 
farmer or rancher, will be given priority in accordance with Sec.  
1955.107 (f). In addition, it is the responsibility of the Agency to 
determine whether or not the FO applicant is an operator of not larger 
than a family size farm, as of the time immediately after the contract 
of sale or lease is entered into, even though the applicant is not in 
need of Agency credit assistance on eligible rates and terms to purchase 
suitable farmland. The loan approval official will determine the 
applicant's projected repayment ability, the adequacy of collateral 
equity to secure the requested loan, and the feasibility of the proposed 
operation.

[[Page 78]]

    (2) An outstanding judgment obtained by the United States in a 
Federal Court (other than the United States Tax Court), which has been 
recorded, shall cause the applicant to be ineligible for any loan or 
grant until the judgment is paid in full or otherwise satisfied. Agency 
loan or grant funds may not be used to satisfy the judgment.
    (j) Timeliness. Processing requirements for each program area are as 
follows:
    (1) Farm Credit Programs (FCP) applications. Each application must 
be approved or disapproved and the applicant notified in writing of the 
action taken, not later than 60 days after receipt of a complete 
application. The District Director will monitor the processing of all 
applications to ensure that each is processed in a timely manner and 
receives a final disposition (i.e., approval, rejection, or withdrawal) 
within the timeframes outlined in this section.
    (i) Receipt by the applicant of a signed copy of Form FmHA 1940-1, 
``Request for Obligation of Funds,'' will be considered written notice 
of loan approval.
    (ii) If a complete application is not approved or disapproved 45 
calendar days after all necessary information is received, the following 
steps will be taken:
    (A) The County Supervisor will make sure that the data in the County 
Office MRS data base regarding the application are up-to-date, and that 
the reason it remains pending is noted. A selection of reasons is listed 
in MRS.
    (B) Every week the District Director will generate a report, using 
the FOCUS Ad-Hoc Reporting System, based on the weekly upload of 
information from each county office MRS data base. The District Director 
will note each complete application pending more than 45 calendar days, 
and immediately take steps to ensure that final disposition on the 
application is taken no later than 60 calendar days after receipt of the 
complete application.
    (C) The Administrator will utilize MRS data and any other 
information available to comply with any statutory reporting 
requirements concerning the status of applications.
    (2) Single Family Housing (SFH) loans. Written notice of eligibility 
or ineligibility will be sent to each applicant not later than 30 days 
after receipt of a complete application. If a determination of 
eligibility cannot be made within 30 days from the date of receipt of 
the complete application, the applicant will be notified in writing of 
the circumstances causing the delay and the approximate time needed to 
make a decision.
    (3) Labor Housing (LH) preapplications. Preapplications must be 
determined eligible and feasible and the applicant notified in writing 
in accordance with applicable program regulations not later than 45 days 
after receipt of a complete preapplication. This eligibility 
determination will be made regardless of funding levels.
    (4) LH applications. If a determination of eligibility cannot be 
made within 30 days from the date of receipt of a complete application, 
the applicant will be notified in writing of the circumstances causing 
the delay and the approximate time needed to make a decision.
    (5) Adverse decisions. If an applicant is given an adverse decision, 
the applicant will be given appeal rights as provided in subpart B of 
part 1900 or 7 CFR part 780, as appropriate. The letter will contain the 
ECOA statement set forth in Sec.  1910.6(b)(1) of this subpart.
    (k) [Reserved]
    (l) Active applications. An applicant may voluntarily withdraw an 
application at any time. Except for incomplete Farm Credit Programs 
applications, when an applicant has been determined eligible, but 
further processing is delayed due to an apparent lack of interest, the 
applicant will be advised by letter that the application will be 
considered withdrawn unless the County Office receives a written request 
within 30 days that further consideration is desired. The letter to the 
borrower will contain the ECOA statement set forth in Sec.  1910.6(b)(1) 
of this subpart.
    (1) Applications for RH, RHS, and LH loans (posted on Form FmHA 
1905-4,

[[Page 79]]

``Application and Processing Card--Individual,'' or inputted in the 
Application Processing Module of MRS) received during any fiscal year 
will remain active during the remainder of that fiscal year in which 
they were received, plus the subsequent fiscal year, unless withdrawn or 
disapproved, or unless the loan is closed.
    (2) Applications received for FO, SW, OL, EM, and persons applying 
for RH loans on farms or nonfarm tracts who derive a major portion of 
their income from farming (inputted in the Application Processing Module 
of MRS), will remain active for 12 months from the date a complete 
application is received, unless withdrawn or disapproved, or unless the 
loan is closed.
    (3) See paragraph (d) of this section for procedures for incomplete 
Farm Credit Programs applications.
    (4) All applications which are withdrawn or rejected will be handled 
in accordance with Sec.  2033.7 of the Agency Instruction 2033-A. If 
notice has been received by the Agency that an adverse action is under 
investigation or in litigation, that application and all related 
material will be retained until final disposition of the matter.
    (5) When an application has been approved and funds are not 
available, and the steps outlined in Sec.  1910.6(g) of this subpart 
have been taken, the following provisions apply:
    (i) The County Supervisor will, during the 11th month following loan 
approval, notify the applicant that the application will expire 12 
months from the date of loan approval.
    (ii) If the applicant wants the application to remain active, the 
applicant must provide the County Office with a written request within 
30 days, requesting that the application remain active.
    (iii) The applications retained at the applicant's request will be 
extended for only one additional 12-month period.
    (iv) If the applicant fails to respond to the County Supervisor's 
written request, the application will be withdrawn.

[53 FR 35671, Sept. 14, 1988, as amended at 55 FR 21525, May 25, 1990; 
55 FR 29560, July 20, 1990; 55 FR 46188, Nov. 2, 1990; 56 FR 66959, Dec. 
27, 1991; 57 FR 19523, May 7, 1992; 58 FR 226, Jan. 5, 1993; 58 FR 
44746, Aug. 25, 1993; 58 FR 48283, Sept. 15, 1993; 58 FR 68719, Dec. 29, 
1993; 58 FR 69195, Dec. 30, 1993; 60 FR 55122, Oct. 27, 1995; 61 FR 
35920, July 9, 1996; 62 FR 9353, Mar. 3, 1997; 66 FR 1572, Jan. 9, 2001; 
68 FR 7696, Feb. 18, 2003; 68 FR 62223, Nov. 3, 2003]



Sec.  1910.5  Evaluating applications.

    The following criteria will be considered in addition to the 
eligibility criteria in applicable program regulations.
    (a) Age of applicant. When evaluating the application, the age of 
the applicant will not be used as a consideration of eligibility 
(provided the applicant has reached the legal age of majority in the 
State, or has had the minority removed by court action) except when a 
specific age is being used to the advantage of the applicant (e.g. 
assistance under the 504 grant program).
    (b) Credit history. Credit history will be a consideration to the 
extent that it is used in evaluating all applicants for similar types 
and amounts of credit. For instance, credit requirements for a female 
applicant will not differ from those for a male applicant.
    (c) When the applicant, including any members of an entity 
applicant, caused the Agency a loss by receiving debt forgiveness, they 
are ineligible for assistance in accordance with applicable program 
eligibility regulations. If the debt forgiveness is cured by repayment 
of the Agency's loss, the Agency may still consider the debt forgiveness 
in determining the applicant's creditworthiness. The following 
circumstances do not automatically indicate an unacceptable credit 
history:
    (1) Foreclosures, judgments, delinquent payments of the applicant 
which occurred more than 36 months before the application, if no recent 
similar situations have occurred, or Agency delinquencies that have been 
resolved

[[Page 80]]

through loan service programs as defined in Sec.  1951.906 of part 1951 
of subpart S of this chapter.
    (2) Isolated incidents of delinquent payments which do not represent 
a general pattern of unsatisfactory or slow payment.
    (3) ``No history'' of credit transactions by the applicant.
    (4) Recent foreclosure, judgment or delinquent payment when the 
applicant can satisfactorily demonstrate that:
    (i) The circumstances causing any of the above were of a temporary 
nature and were beyond the applicant's control. Example: loss of job; 
delay or reduction in government benefits, or other loss of income; 
increased living expenses due to illness, death, etc.
    (ii) The adverse action or delinquency was the result of a refusal 
to make full payment because of defective goods or services or as a 
result of some other justifiable dispute relating to the goods or 
services purchased or contracted for.
    (5) Non-payment of a debt due to circumstances beyond the 
applicant's or borrower's control. However, non-payment of a debt due to 
circumstances within an applicant's or borrower's control may be used as 
an indication of unacceptable credit history, in accordance with 
paragraph (c)(1) of this section. The mere fact that an applicant or 
borrower filed bankruptcy will not be used as an indication of 
unacceptable credit history. The circumstances causing the nonpayment of 
debt, i.e., whether nonpayment was beyond the applicant's or borrower's 
control, however, are proper considerations.
    (d) Current/Past FmHA or its successor agency under Public Law 103-
354 Loan History. Current or previous delinquent FmHA or its successor 
agency under Public Law 103-354 loans, as determined by reviewing the 
Current/Past Debt Inquiry System or the Borrower Cross-Reference Inquiry 
System, will be used to help determine the credit history of an 
applicant.
    (e) Delinquency on a Federal debt. The Department of Housing and 
Urban Development Credit Alert Interactive Voice Response System 
(CAIVRS) will be used to help determine if an applicant is deliquent on 
any Federal debt.

[53 FR 35671, Sept. 14, 1988, as amended at 55 FR 21525, May 25, 1990; 
55 FR 46188, Nov. 2, 1990; 56 FR 10147, Mar. 11, 1991; 60 FR 55122, Oct. 
27, 1995; 61 FR 1109, Jan. 16, 1996; 61 FR 2899, Jan. 30, 1996; 61 FR 
35921, July 9, 1996; 62 FR 28618, May 27, 1997]



Sec.  Sec.  1910.6-1910.9  [Reserved]



Sec.  1910.10  Preference.

    (a) Veterans. (1) Veteran's preference is given to any person 
applying for an RH, FO, SW, or OL loan who has been honorably 
discharged, including clemency discharges, or released from the active 
forces of the U.S. Army, Navy, Air Force, Marine Corps, or Coast Guard, 
and who served during a period of war, as defined in 38 U.S.C. 101(12).
    (2) Veteran's preference will apply when:
    (i) There is a shortage of funds.
    (ii) Obligating forms are ready to be submitted to the Finance 
Office, and
    (iii) There is more than one application having the same date.
    (3) For Rural Housing applicants, veteran's preference will be 
extended to the spouses and children of deceased servicemen who died in 
service during one of the periods listed in paragraph (a)(1) of this 
section.
    (b) Farm Credit Programs (FCP) loans. In addition to the veteran's 
preference, the preference set out in Sec.  1943.10 of subpart A of part 
1943 of this chapter applies.

[53 FR 35671, Sept. 14, 1988, as amended at 61 FR 35922, July 9, 1996; 
62 FR 9353, Mar. 3, 1997]



Sec.  1910.11  Special requirements.

    (a) Servicemen's Readjustment Act of 1944. Section 512(a)(D) of the 
Servicemen's Readjustment Act of 1944, as amended, provides that an 
applicant for a direct housing loan from the Department of Veterans 
Affairs (VA) must be ``unable to obtain a loan for such purposes from 
the Secretary of Agriculture under the Consolidated Farm and Rural 
Development Act, as amended, or the Housing Act of 1949, as amended.'' 
Department of Veterans Affairs Loan Guaranty Officers may, therefore, 
require VA loan applicants to apply to the agency for loan assistance.

[[Page 81]]

    (b) Veterans determined ineligible by the Agency. If the veteran is 
unable to obtain a loan, the County Supervisor will, upon request, 
furnish the applicant with a rejection letter to be presented to the 
Loan Guaranty Officer. The Loan Guaranty Officer may consult with the 
County Supervisor regarding the investigation made by the Agency of the 
veteran's application and the specific reasons for rejection.

[61 FR 35922, July 9, 1996]



Sec. Sec.  1910.12-1910.49  [Reserved]



Sec.  1910.50  OMB control number.

    The reporting and recordkeeping requirements contained in this 
regulation have been approved by the Office of Management and Budget and 
have been assigned OMB control number 0575-0134. Public reporting burden 
for this collection of information is estimated to vary from 20 minutes 
to 2 hours per response including time for
    reviewing instructions, searching existing data sources, gathering 
and maintaining the data needed, and completing and reviewing the 
collection of information. Send comments regarding this burden estimate 
or any other aspect of collection of this information, including 
suggestions for reducing this burden, to Department of Agriculture, 
Clearance Officer, OIRM, room 404-W, Washington, DC 20250; and to the 
Office of Management and Budget, Paperwork Reduction Project (OMB 
 0575-0134), Washington, DC 20503.

[57 FR 19523, May 7, 1992]

              Exhibit A to Subpart A of Part 1910[Reserved]

     Exhibit B to Subpart A of Part 1910--Letter to Notify Socially 
Disadvantaged Applicants/Borrowers Regarding the Availability of Direct 
  Farm Ownership (FO) Loans and the Acquisition/Leasing of FmHA or Its 
       Successor Agency Under Public Law 103-354 Acquired Farmland

                 United States Department of Agriculture

  Farmers Home Administration or its successor agency under Public Law 
                                 103-354

(Insert address)

Date --------
    Dear --------:
    The Farmers Home Administration (FmHA) or its successor agency under 
Public Law 103-354 has authority under the Consolidated Farm and Rural 
Development Act to target direct farm ownership (FO) loan funds to 
applicants/borrowers of socially disadvantaged groups. This program 
provides credit to applicants/borrowers of socially disadvantaged 
groups, at regular or reduced interest rates, to purchase or enlarge 
farms. In addition, the program provides that FmHA or its successor 
agency under Public Law 103-354 acquired farmland be made available for 
sale or lease to applicants/borrowers of socially disadvantaged groups. 
Socially disadvantaged borrowers with existing direct FO loans may have 
their accounts deferred and/or reamortized at a reduced interest rate.
    If you would like additional information regarding the availability 
of direct FO loans to, and/or the renting or buying of FmHA or its 
successor agency under Public Law 103-354 acquired farmland by, members 
of socially disadvantaged groups, you should contact my office.
    Sincerely,
    County Supervisor.

[57 FR 19523, May 7, 1992]

   Exhibit C to Subpart A of Part 1910--Letter to Notify Applicant(s)/
  Borrower(s) of Their Responsibilities in Connection with FmHA or Its 
     Successor Agency Under Public Law 103-354 Farmer Program Loans

    Note: Exhibit C, referenced in this subpart, is available in any 
FmHA or its successor agency under Public Law 103-354 office.



                  Subpart B_Credit Reports (Individual)

    Source: 49 FR 40790, Oct. 18, 1984, unless otherwise noted.



Sec.  1910.51  Purpose.

    This subpart prescribes the policies and procedures of the Farmers 
Home Administration (FmHA) or its successor agency under Public Law 103-
354 for individual and joint type credit reports. Credit reports will be 
ordered to determine the eligibility of applicants requesting Farmers 
Home Administration (FmHA) or its successor agency

[[Page 82]]

under Public Law 103-354 loans. A nonrefundable fee will be charged the 
applicant.

[55 FR 46188, Nov. 2, 1990]



Sec.  1910.52  [Reserved]



Sec.  1910.53  Policy.

    The County Supervisor will be responsible for ordering individual 
credit reports. These will be obtained on initial and rescheduled Farmer 
Program loans and on all initial Single Family Housing applications, 
except for those situations outlined in paragraph (c) of this section, 
to help determine the eligibility of the loan applicant, and when it 
appears the credit report will not have to be updated before loan 
closing.

[55 FR 46188, Nov. 2, 1990]



Sec. Sec.  1910.54-1910.100  [Reserved]



                   Subpart C_Commercial Credit Reports

    Source: 52 FR 6498, Mar. 4, 1987, unless otherwise noted.



Sec.  1910.101  Preface.

    FmHA or its successor agency under Public Law 103-354 Instruction 
1910-C (available in any Farmers Home Administration (FmHA) or its 
successor agency under Public Law 103-354 office) describes the 
procedure to be used by FMHA in obtaining commercial credit reports. A 
nonrefundable fee, set forth in Sec.  1910.106(d) of this Instruction 
will be collected from the applicant, general contractor or dealer 
contractor who is the subject of the report.



Sec. Sec.  1910.102-1910.150  [Reserved]

                          PART 1922 [RESERVED]



PART 1924_CONSTRUCTION AND REPAIR--Table of Contents




  Subpart A_Planning and Performing Construction and Other Development

Sec.
1924.1 Purpose.
1924.2 [Reserved]
1924.3 Authorities and responsibilities.
1924.4 Definitions.
1924.5 Planning development work.
1924.6 Performing development work.
1924.7 [Reserved]
1924.8 Development work for modular/panelized housing units.
1924.9 Inspection of development work.
1924.10 Making changes in the planned development.
1924.11 District Director's review of incomplete development.
1924.12 Warranty of development work.
1924.13 Supplemental requirements for more complex construction.
1924.14-1924.48 [Reserved]
1924.49 State supplements.
1924.50 OMB control number.

Exhibit A to Subpart A--Estimated Breakdown of Dwelling Costs for 
          Estimating Partial Payments
Exhibit B to Subpart A--Requirements for Modular/Panelized Housing Units
Exhibit C to Subpart A--Guide for Drawings and Specifications
Exhibit D to Subpart A--Thermal Performance Construction Standards
Exhibit E to Subpart A--Voluntary National Model Building Codes
Exhibit F to Subpart A--Payment Bond
Exhibit G to Subpart A--Performance Bond
Exhibit H to Subpart A--Prohibition of Lead-Based Paints
Exhibit I to Subpart A--Guidelines for Seasonal Farm Labor Housing
Exhibit J to Subpart A--Manufactured Home Sites, Rental Projects and 
          Subdivisions: Development, Installation and Set-Up
Exhibit K to Subpart A--Classifications for Multi-Family Residential 
          Rehabilitation Work
Exhibit L to Subpart A--Insured 10-Year Home Warranty Plan Requirements

   Subpart B_Management Advice to Individual Borrowers and Applicants

1924.51 General.
1924.52-1924.53 [Reserved]
1924.54 Definitions.
1924.55 Assessment of the agricultural operation.
1924.56 Farm business planning.
1924.57 [Reserved]
1924.58 Recordkeeping.
1924.59 Supervision.
1924.60 Nonfarm enterprises.
1924.61-1924.73 [Reserved]
1924.74 Borrower Training program.
1924.75-1924.99 [Reserved]
1924.100 OMB control number.
Exhibit A to Subpart B--Letter to Borrower Regarding Releases of Farm 
          Income To Pay Family Living and Farm Operating Expenses

[[Page 83]]

         Subpart C_Planning and Performing Site Development Work

1924.101 Purpose.
1924.102 General policy.
1924.103 Scope.
1924.104 Definitions.
1924.105 Planning/performing development.
1924.106 Location.
1924.107 Utilities.
1924.108 Grading and drainage.
1924.109-1924.114 [Reserved]
1924.115 Single Family Housing site evaluation.
1924.116-1924.118 [Reserved]
1924.119 Site Loans.
1924.120-1924.121 [Reserved]
1924.122 Exception authority.
1924.123-1924.149 [Reserved]
1924.150 OMB Control Number.
Exhibit A to Subpart C [Reserved]
Exhibit B to Subpart C--Site Development Design Requirements
Exhibit C to Subpart C--Checklist of Visual Exhibits and Documentation 
          for RRH, RCH, and LH Proposals

Subparts D-E [Reserved]

     Subpart F_Complaints and Compensation for Construction Defects

1924.251 Purpose.
1924.252 Policy.
1924.253 Definitions.
1924.254-1924.257 [Reserved]
1924.258 Notification of borrowers.
1924.259 Handling dwelling construction complaints.
1924.260 Handling manufactured housing (unit) construction complaints.
1924.261 Handling complaints involving dwellings covered by an 
          independent or insured home warranty plan.
1924.262 Handling complaints involving dwellings constructed by the 
          self-help method.
1924.263-1924.264 [Reserved]
1924.265 Eligibility for compensation for construction defects.
1924.266 Purposes for which claims may be approved.
1924.267-1924.270 [Reserved]
1924.271 Processing applications.
1924.272 [Reserved]
1924.273 Approval or disapproval.
1924.274 Final inspection.
1924.275 [Reserved]
1924.276 Action against contractor.
1924.277-1924.299 [Reserved]
1924.300 OMB control number.

    Authority: 5 U.S.C. 301; 7 U.S.C 1989; 42 U.S.C 1480.



  Subpart A_Planning and Performing Construction and Other Development

    Source: 52 FR 8002, Mar. 13, 1987, unless otherwise noted.



Sec.  1924.1  Purpose.

    This subpart prescribes the basic Farmers Home Administration (FmHA) 
or its successor agency under Public Law 103-354 policies, methods, and 
responsibilities in the planning and performing of construction and 
other development work for insured Rural Housing (RH), insured Farm 
Ownership (FO), Soil and Water (SW), Softwood Timber (ST), single unit 
Labor Housing (LH), and Emergency (EM) loans for individuals. It also 
provides supplemental requirements for Rural Rental Housing (RRH) loans, 
Rural Cooperative Housing (RCH) loans, multi-unit (LH) loans and grants, 
and Rural Housing Site (RHS) loans.

[53 FR 35679, Sept. 14, 1988]



Sec.  1924.2  [Reserved]



Sec.  1924.3  Authorities and responsibilities.

    The County Supervisor and District Director are authorized to 
redelegate, in writing, any authority delegated to them in this subpart 
to the Assistant County Supervisor and Assistant District Director, 
respectively, when determined to be qualified. FmHA or its successor 
agency under Public Law 103-354 Construction Inspectors, District Loan 
Assistants, and County Office Assistants are authorized to perform 
duties under this subpart as authorized in their job descriptions.



Sec.  1924.4  Definitions.

    (a) Construction. Such work as erecting, repairing, remodeling, 
relocating, adding to or salvaging any building or structure, and the 
installation or repair of, or addition to, heating and electrical 
systems, water systems, sewage disposal systems, walks, steps, 
driveways, and landscaping.
    (b) Contract documents. The borrower-contractor agreement, the 
conditions of the contract (general, supplementary, and other), the 
drawings,

[[Page 84]]

specifications, warranty information, all addenda issued before 
executing the contract, all approved modifications thereto, and any 
other items stipulated as being included in the contract documents.
    (c) Contractor. The individual or organization with whom the 
borrower enters into a contract for construction or land development, or 
both.
    (d) County Supervisor and District Director. In Alaska, for the 
purpose of this subpart, ``County Supervisor'' and ``District Director'' 
also mean ``Assistant Area Loan Specialist'' and ``Area Loan 
Specialist,'' respectively. The terms also include other qualified staff 
who may be delegated responsibilities under this subpart in accordance 
with the provisions of subpart F of part 2006 (available in any FmHA or 
its successor agency under Public Law 103-354 office).
    (e) Date of commencement of work. The date established in a ``Notice 
to Proceed'' or, in the absence of such notice, the date of the contract 
or other date as may be established in it or by the parties to it.
    (f) Date of substantial completion. The date certified by the 
Project Architect/Engineer or County Supervisor when it is possible, in 
accordance with any contract documents and applicable State or local 
codes and ordinances, and the FmHA or its successor agency under Public 
Law 103-354 approved drawings and specifications, to permit safe and 
convenient occupancy and/or use of the buildings or other development.
    (g) Development. Construction and land development.
    (h) Development standards. Any of the following codes and standards:
    (1) A standard adopted by FmHA or its successor agency under Public 
Law 103-354 for each state in accordance with Sec.  1924.5(d)(1)(i)(E) 
of this subpart.
    (2) Voluntary national model building codes (model codes). 
Comprehensive documents created, referenced or published by nationally 
recognized associations of building officials that regulate the 
construction, alteration and repair of building, plumbing, mechanical 
and electrical systems. These codes are listed in exhibit E of this 
subpart.
    (3) Minimum Property Standards (MPS). The Department of Housing and 
Urban Development (HUD) Minimum Property Standards for Housing, Handbook 
4910.1, 1984 Edition with Changes. (For One and Two Family Dwellings and 
Multi-Family Housing).
    (i) Identity of interest. Identity of interest will be construed as 
existing between the applicant (the party of the first part) and general 
contractors, architects, engineers, attorneys, subcontractors, material 
suppliers, or equipment lessors (parties of the second part) under any 
of the following conditions:
    (1) When there is any financial interest of the party of the first 
part in the party of the second part. The providing of normal 
professional services by architects, engineers, attorneys or accountants 
with a client-professional relationship shall not constitute an identity 
of interest.
    (2) When one or more of the officers, directors, stockholders or 
partners of the party of the first part is also an officer, director, 
stockholder, or partner of the party of the second part.
    (3) When any officer, director, stockholder or partner of the party 
of the first part has any financial interest whatsoever in the party of 
the second part.
    (4) Between the spouse, significant other, relatives, and step-
relatives of the principal owners of the party of the first part and its 
management, such as Grandmother, Aunt, Daughter, Granddaughter, 
Grandfather, Uncle, Son, Grandson, Mother, Sister, Niece, Cousin, 
Father, Brother, Nephew;
    (5) When the party of the second part advances any funds to the 
party of the first part.
    (6) When the party of the second part provides and pays on behalf of 
the party of the first part the cost of any legal services, 
architectural services or engineering services other than those of a 
surveyor, general superintendent, or engineer employed by a general 
contractor in connection with obligations under the construction 
contract.
    (7) When the party of the second part takes stock or any interest in 
the party of the first part as part of the consideration to be paid 
them.

[[Page 85]]

    (8) When there exist or come into being any side deals, agreements, 
contracts or undertakings entered into thereby altering, amending, or 
cancelling any of the required closing documents except as approved by 
FmHA or its successor agency under Public Law 103-354.
    (9) An identity of interest will also exist when another party can 
significantly influence the management or operating policies of the 
transacting parties or if it has an ownership interest in one of the 
transacting parties and can significantly influence the other to an 
extent that one or more of the transacting parties might be prevented 
from fully pursuing its own separate interests.
    (j) Land development. Includes items such as terracing, clearing, 
leveling, fencing, drainage and irrigation systems, ponds, forestation, 
permanent pastures, perennial hay crops, basic soil amendments, 
pollution abatement and control measures, and other items of land 
improvement which conserve or permanently enhance productivity. Also, 
land development for structures includes the applicable items above, and 
items such as rough and finish grading, retaining walls, water supply 
and waste disposal facilities, streets, curbs and gutters, sidewalks, 
entrancewalks, driveways, parking areas, landscaping and other related 
structures.
    (k) Manufactured housing. Housing, constructed of one or more 
factory-built sections, which includes the plumbing, heating and 
electrical systems contained therein, which is built to comply with the 
Federal Manufactured Home Construction and Safety Standards (FMHCSS), 
and which is designed to be used with or without a permanent foundation. 
Specific requirements for manufactured homes sites, rental projects and 
subdivisions are in exhibit J of this subpart.
    (l) Mechanic's and materialmen's liens. A lien on real property in 
favor of persons supplying labor and/or materials for the construction 
for the value of labor and/or materials supplied by them. In some 
jurisdictions, a mechanic's lien also exists for the value of 
professional services.
    (m) Modular/panelized housing. Housing, constructed of one or more 
factory-built sections, which, when completed, meets or exceeds the 
requirements of one or more of the recognized development standards for 
site-built housing, and which is designed to be permanently connected to 
a site-built foundation.
    (n) Project representative. The architect's or owner's 
representative at the construction site who assists in the 
administration of the construction contract. When required by FmHA or 
its successor agency under Public Law 103-354, a full-time project 
representative shall be employed.
    (o) Technical services. Applicants are responsible for obtaining the 
services necessary to plan projects including analysis of project design 
requirements, creation and development of the project design, 
preparation of drawings, specifications and bidding requirements, and 
general administration of the construction contract.
    (1) Architectural services. The services of a professionally 
qualified person or organization, duly licensed and qualified in 
accordance with state law to perform architectural services.
    (2) Engineering services. The services of a professionally qualified 
person or organization, duly licensed and qualified in accordance with 
State law to perform engineering services.
    (p) Warranty. A legally enforceable assurance provided by the 
builder (warrantor) to the owner and the FmHA or its successor agency 
under Public Law 103-354 indicating that the work done and materials 
supplied conform to those specified in the contract documents and 
applicable regulations. For the period of the warranty, the warrantor 
agrees to repair defective workmanship and repair or replace any 
defective materials at the expense of the warrantor.

[52 FR 8002, Mar. 13, 1987, as amended at 59 FR 6882, Feb. 14, 1994]



Sec.  1924.5  Planning development work.

    (a) Extent of development. For an FO loan, the plans for development 
will include the items necessary to put the farm in a livable and 
operable condition consistent with the planned farm and home operations. 
For other types

[[Page 86]]

of loans, the plans will include those items essential to achieve the 
objectives of the loan or grant as specified in the applicable 
regulation.
    (b) Funds for development work. The total cash cost of all planned 
development will be shown on Form FmHA or its successor agency under 
Public Law 103-354 1924-1, ``Development Plan,'' except Form FmHA or its 
successor agency under Public Law 103-354 1924-1 may be omitted when: 
(1) All development is to be done by the contract method, (2) adequate 
cost estimates are included in the docket, and (3) the work, including 
all landscaping, repairs, and site development work, is completely 
described on the drawings, in the specifications, or in the contract 
documents. Sufficient funds to pay for the total cash cost of all 
planned development must be provided at or before loan closing. Funds to 
be provided may include loan proceeds, any cash to be furnished by the 
borrower, proceeds from cost sharing programs such as Agricultural 
Stabilization and Conservation Service (ASCS) and Great Plains programs 
or proceeds from the sale of property in accordance with paragraph (g) 
of this section.
    (c) Scheduling of development work. (1) All construction work 
included in the development plan for RH loans will be scheduled for 
completion as quickly as practicable and no later than 9 months from the 
date of loan closing, except for mutual self-help housing where work may 
be scheduled for completion within a period of 15 months.
    (2) Development for farm program loans will be scheduled for 
completion as quickly as practicable and no later than 15 months from 
the date of loan closing unless more time is needed to establish land 
developnent practices in the area.
    (d) Construction. (1) All new buildings to be constructed and all 
alterations and repairs to buildings will be planned to conform with 
good construction practices. The FmHA or its successor agency under 
Public Law 103-354 Manual of Acceptable Practices (MAP) Vol. 4930.1 
(available in any FmHA or its successor agency under Public Law 103-354 
office), provides suggestions and illustrative clarifications of design 
and construction methods which are generally satisfactory in most areas. 
All improvements to the property will conform to applicable laws, 
ordinances, codes, and regulations related to the safety and sanitation 
of buildings; standards referenced in Appendices C through F of HUD 
Handbook 4910.1, Minimum Property Standards for Housing; Thermal 
Performance Construction Standards contained in exhibit D of this 
subpart and, when required, to certain other development standards 
described below.
    (i) The development standard applicable to a proposal will be 
selected by the loan applicant or recipient of an RH Conditional 
Commitment in accordance with the following. The standard selected must:
    (A) Relate to the type(s) of building proposed.
    (B) Meet or exceed any applicable local or state laws, ordinances, 
codes and regulations.
    (C) Include all referenced codes and standards.
    (D) Exclude inapplicable administrative requirements.
    (E) Be the current edition(s) of either paragraph (d)(1)(i)(E)(1) or 
(2) of this section:
    (1) The development standard, consisting of building, plumbing, 
mechanical and electrical codes, adopted by FmHA or its successor agency 
under Public Law 103-354 for use in the state (identified in a State 
Supplement to this section) in which the development is proposed, in 
accordance with the following:
    (i) The adopted development standard shall include any building, 
plumbing, mechanical or electrical code adopted by the State, if 
determined by the State Director to be based on one of the model codes 
listed in exhibit E to this subpart, or, if not available,
    (ii) The adopted development standard shall include any building, 
plumbing, mechanical or electrical code adopted by the state, if 
determined by the Administrator to be acceptable, or, if not available,
    (iii) The adopted development standard shall include the model 
building, plumbing, mechanical or electrical code listed in exhibit E to 
this subpart

[[Page 87]]

that is determined by the State Director to be most prevalent and 
appropriate for the state.
    (2) Any of the model building, plumbing, mechanical and electrical 
codes listed in exhibit E to this subpart or the standards defined in 
Sec.  1924.4(h)(3) of this subpart.
    (ii) Guide 2, ``FmHA or its successor agency under Public Law 103-
354 Design Guide,'' of this subpart (available in any FmHA or its 
successor agency under Public Law 103-354 office), includes guidelines 
for the evaluation of the design features which are not fully addressed 
in the development standards.
    (iii) In new housing, all design, materials and construction will 
meet or exceed the applicable development standard as provided in 
paragraph (d)(1)(i) of this section.
    (iv) For multi-family residential rehabilitation, as defined in 
exhibit K of this subpart, all substantial rehabilitation work on 
existing buildings will meet or exceed the applicable development 
standard. All moderate rehabilitation work should comply with Guide 3, 
``Quality and Performance Criteria for Moderate Rehabilitation,'' of 
this subpart (available in any FmHA or its successor agency under Public 
Law 103-354 office).
    (v) The design and construction of housing repairs made with FmHA or 
its successor agency under Public Law 103-354 loan or grant funds will, 
as near as possible, comply with the applicable development standard.
    (vi) Farm LH design and construction will comply with the following:
    (A) Family projects, where the length of occupancy will be:
    (1) Year-round, will meet or exceed the applicable development 
standard.
    (2) Less than 12 months, but more than 6 months, will be in 
substantial conformance with the applicable development standard and 
constructed to facilitate conversion to year-round occupancy standards.
    (3) Six months or less, may be less than the applicable development 
standard but should be constructed in accordance with exhibit I of this 
subpart.
    (B) Dormitory and other nonfamily type projects, where the length of 
occupancy will be:
    (1) More than 6 months, will be in substantial conformance with the 
applicable development standard and will at least meet or exceed the 
requirements of the Department of Labor, Bureau of Employment Security 
(29 CFR 1910.140).
    (2) Six months or less, will comply with Sec.  
1924.5(d)(1)(vi)(A)(3).
    (vii) Farm service buildings should be designed and constructed for 
adaptation to the local area. In designing and locating farm service 
buildings, consideration will be given to practices recommended by 
agriculture colleges, the Extension Service (ES), Soil Conservation 
Service (SCS) and other reliable sources.
    (2) Drawings, specifications, and estimates will fully describe the 
work. Technical data, tests, or engineering evaluations may be required 
to support the design of the development. The ``Guide for Drawings and 
Specifications,'' exhibit C of this subpart, describes the drawings and 
specifications that are to be included in the application for building 
construction, and subpart C of part 1924 of this chapter describes the 
drawings that should be included for development of building sites. The 
specific development standard being used, if required under paragraph 
(d)(1) of this section will be identified on all drawings and 
specifications.
    (3) Materials acceptance shall be the same as described in paragraph 
X of exhibit B to this subpart.
    (4) Except as provided in paragraphs (d)(4)(i) through (iii) of this 
section, new building construction and additions shall be designed and 
constructed in accordance with the earthquake (seismic) requirements of 
the applicable Agency's development standard (building code). The 
analysis and design of structural systems and components shall be in 
accordance with applicable requirements of an acceptable model building 
code.
    (i) Agricultural buildings that are not intended for human 
habitation are exempt from these earthquake (seismic) requirements.
    (ii) Single family conventional light wood frame dwellings of two 
stories or 35 feet in height maximum shall be designed and constructed 
in accordance

[[Page 88]]

with the 1992 Council of American Building Officials (CABO) One and Two 
Family Dwelling Code or the latest edition.
    (iii) Single family housing of masonry design and townhouses of wood 
frame construction and additions financed (either directly or through a 
guarantee) under title V of the Housing Act of 1949 are recommended to 
be designed and constructed in accordance with the earthquake (seismic) 
requirements of one of the building codes that provides an equivalent 
level of safety to that contained in the latest edition of the National 
Earthquake Hazard Reduction Program's (NEHRP) Recommended Provisions for 
the Development of Seismic Regulations for New Building (NEHRP 
Provisions).
    (iv) Acknowledgment of compliance with the applicable seismic safety 
requirements for new construction will be contained in the certification 
of final plans and specification on the appropriate Agency Form.
    (e) Land development. (1) In planning land development, 
consideration will be given to practices, including energy conservation 
measures, recommended by agricultural colleges, ES, SCS or other 
reliable sources. All land and water development will conform to 
applicable laws, ordinances, zoning and other applicable regulations 
including those related to soil and water conservation and pollution 
abatement. The County Supervisor or District Director also will 
encourage the applicant to use any cost-sharing and planning assistance 
that may be available through agricultural conservation programs.
    (2) Site and subdivision planning and development must meet the 
requirements of subpart C of part 1924 of this chapter.
    (3) Plans and descriptive material will fully describe the work.
    (4) The site planning design, development, installation and set-up 
of manufactured home sites, rental projects and subdivisions shall meet 
the requirements of exhibit J of this subpart and subpart C of part 1924 
of this chapter.
    (i) Plans for land leveling, irrigation, or drainage should include 
a map of the area to be improved showing the existing conditions with 
respect to soil, topography, elevations, depth of topsoil, kind of 
subsoil, and natural drainage, together with the proposed land 
development.
    (ii) When land development consists of, or includes, the 
conservation and use of water for irrigation or domestic purposes, the 
information submitted to the County Supervisor will include a statement 
as to the source of the water supply, right to the use of the water, and 
the adequacy and quality of the supply.
    (f) Responsibilities for planning development. Planning construction 
and land development and obtaining technical services in connection with 
drawings, specifications and cost estimates are the sole responsibility 
of the applicant, with such assistance from the County Supervisor or 
District Director (whichever is the appropriate loan processing and 
servicing officer for the type of loan involved), as may be necessary to 
be sure that the development is properly planned in order to protect 
FmHA or its successor agency under Public Law 103-354's security.
    (1) Responsibility of the applicant. (i) The applicant will arrange 
for obtaining any required technical services from qualified 
technicians, tradespeople, and recognized plan services, and the 
applicant will furnish the FmHA or its successor agency under Public Law 
103-354 sufficient information to describe fully the planned development 
and the manner in which it will be accomplished.
    (ii) When items of construction or land development require drawings 
and specifications, they will be sufficiently complete to avoid any 
misunderstanding as to extent, kind, and quality of work to be 
performed. The applicant will provide FmHA or its successor agency under 
Public Law 103-354 with one copy of the drawings and specifications. 
Approval will be indicated by the applicant and acceptance for the 
purposes of the loan indicated by the County Supervisor or District 
Director on all sheets of the drawings and at the end of the 
specifications, and both instruments will be a part of the loan docket. 
After the loan is closed, the borrower will retain a conformed copy of 
the approved drawings

[[Page 89]]

and specifications, and provide another conformed copy to the 
contractor. Items not requiring drawings and specifications may be 
described in narrative form.
    (iii) FmHA or its successor agency under Public Law 103-354 will 
accept final drawings and specifications and any modifications thereof 
only after the documents have been certified in writing as being in 
conformance with the applicable development standard if required under 
paragraph (d)(1) of this section. Certification is required for all 
Single Family Housing (SFH) thermal designs (plans, specifications, and 
calculations).
    (A) Certifications may be accepted from individuals or organizations 
who are trained and experienced in the compliance, interpretation or 
enforcement of the applicable development standards for drawings and 
specifications. Plan certifiers may be any of the following:
    (1) Licensed architects,
    (2) Professional engineers,
    (3) Plan reviewers certified by a national model code organization 
listed in exhibit E to this subpart,
    (4) Local building officials authorized to review and approve 
building plans and specifications, or
    (5) National codes organizations listed in exhibit E to this 
subpart.
    (B) The license or authorization of the individual must be current 
at the time of the certification statement. A building permit (except as 
noted in paragraph (f)(1)(iii)(C)(2) of this section) or professional's 
stamp is not an acceptable substitute for the certification statement. 
However, a code compliance review conducted by one of the National 
recognized code organizations indicating no deficiencies or the noted 
deficiencies have been corrected is an acceptable substitute for the 
certification statement.
    (C) For Single Family Housing (one to four family dwelling units) 
FmHA or its successor agency under Public Law 103-354 may also accept 
drawings and specifications that have been certified by:
    (1) Registered Professional Building Designers certified by the 
American Institute of Building Design.
    (2) A local community, if that community has adopted, by reference, 
one of the model building codes and has trained official(s) who 
review(s) plans as well as inspect(s) construction for compliance as a 
requisite for issuing a building permit. The building permit, issued by 
the community, may serve as evidence of acceptance. The State Director 
will determine eligible communities and publish, as a State supplement 
to this section, a list of those communities that qualify.
    (3) A plan service that provides drawings and specifications that 
are certified by individuals or organizations as listed in paragraph 
(f)(1)(iii)(A) or (f)(1)(iii)(C) (1) and (2) of this section as meeting 
the appropriate state adopted development standard.
    (4) Builders/Contractors who provide 10-year warranty plans for the 
specific FmHA or its successor agency under Public Law 103-354 finance 
dwelling unit that meet the requirements of exhibit L of this subpart.
    (5) Builders/Contractors that are approved by the United States 
Department of Housing and Urban Development (HUD) for self-
certification.
    (D) The modifications of certified drawings or specifications must 
be certified by the same individual or organization that certified the 
original drawings and specifications. If such individual or organization 
is not available, the entire set of modified drawings and specifications 
must be recertified.
    (E) The certification of modifications for single family housing 
(SFH) construction may be waived if the builder or original author of 
the drawings and specifications provides a written statement that the 
modifications are not regulated by the applicable development standard. 
The County Supervisor may consult with the State Office Architect/
Engineer as to acceptance of the statement and granting a waiver.
    (F) All certifications of final drawings, specifications, and 
calculations shall be on Form FmHA or its successor agency under Public 
Law 103-354 1924-25, ``Plan Certification.''
    (2) Responsibility of the County Supervisor or District Director. In 
accordance with program regulations for loans and grants they are 
required to process, the County Supervisor or District Director,

[[Page 90]]

for the sole benefit of FmHA or its successor agency under Public Law 
103-354, will:
    (i) Visit each farm or site on which the development is proposed. 
For an FO loan, the County Supervisor and the applicant will determine 
the items of development necessary to put the farm in a livable and 
operable condition at the outset. Prepare Form FmHA or its successor 
agency under Public Law 103-354 1924-1, when applicable in accordance 
with the Forms Manual Insert (FMI) for the form, after a complete 
understanding has been reached between the applicant and the County 
Supervisor regarding the development to be accomplished, including the 
dates each item of development will be started and completed.
    (ii) Notify the loan or grant applicant in writing immediately if, 
after reviewing the preliminary proposal and inspecting the site, the 
proposal is not acceptable. If the proposal is acceptable, an 
understanding will be reached with the applicant concerning the starting 
date for each item of development.
    (iii) Discuss with the applicant the FmHA or its successor agency 
under Public Law 103-354 requirements with respect to good construction 
and land development practices.
    (iv) Advise the applicant regarding drawings, specifications, cost 
estimates, and other related material which the applicant must submit to 
the FmHA or its successor agency under Public Law 103-354 for review 
before the loan can be developed. Advise the applicant of the 
information necessary in the drawings, how the cost estimates should be 
prepared, the number of sets of drawings, specifications, and cost 
estimates required, and the necessity for furnishing such information 
promptly. Advise the applicant that FmHA or its successor agency under 
Public Law 103-354 will provide appropriate specification forms, Form 
FmHA or its successor agency under Public Law 103-354 1924-2, 
``Description of Materials,'' and Form FmHA or its successor agency 
under Public Law 103-354 1924-3, ``Service Building Specifications.'' 
The applicant may, however, use other properly prepared specifications.
    (v) Advise the applicant regarding publications, plans, planning 
aids, engineering data, and other technical advice and assistance 
available through local, state, and Federal agencies, and private 
individuals and organizations.
    (vi) Review the information furnished by the applicant to determine 
the completeness of the plans, adequacy of the cost estimates, 
suitability and soundness of the proposed development.
    (vii) When appropriate, offer suggestions as to how drawings and 
specifications might be altered to improve the facility and better serve 
the needs of the applicant. The County Supervisor or District Director 
may assist the applicant in making revisions to the drawings. When 
appropriate, the contract documents will be forwarded to the State 
architect/engineer for review. For revisions requiring technical 
determinations that FmHA or its successor agency under Public Law 103-
354 is not able to make, the applicant will be requested to obtain 
additional technical assistance.
    (viii) Provide the applicant with a written list of changes required 
in the contract documents. The applicant will submit two complete 
revised (as requested) sets of contract documents, for approval. On one 
set, the County Supervisor or District Director will indicate acceptance 
on each sheet of the drawings, and on the cover of the specifications 
and all other contract documents. At least the date and the initials of 
the approval official must be shown. On projects where a consulting 
architect or engineer has been retained, this acceptance will be 
indicated only after the State Director has given written authorization. 
The marked set of documents shall be available at the job site at all 
times for review by FmHA or its successor agency under Public Law 103-
354. The second set will become part of the loan docket.
    (ix) Review the proposed method of doing the work and determine 
whether the work can be performed satisfactorily under the proposed 
method.
    (x) Instruct the applicant not to incur any debts prior to loan 
closing for materials or labor or make any expenditures for such 
purposes with the

[[Page 91]]

expectation of being reimbursed from loan funds.
    (xi) Instruct the applicant not to commence any construction nor 
cause any supplies or materials to be delivered to the construction site 
prior to loan closing.
    (xii) Under certain conditions prescribed in exhibit H of this 
subpart, provide the applicant with a copy of the leaflet, ``Warning--
Lead-Based Paint Hazards,'' which is attachment 1 of exhibit H 
(available in any FmHA or its successor agency under Public Law 103-354 
office), and the warning sheet, ``Caution Note on Lead-Based Paint 
Hazard,'' which is attachment 2 of exhibit H (available in any FmHA or 
its successor agency under Public Law 103-354 office).
    (g) Surplus structures and use or sale of timber, sand, or stone. In 
planning the development, the applicant and the County Supervisor or 
District Director should, when practicable, plan to use salvage from old 
buildings, timber, sand, gravel, or stone from the property. The 
borrower may sell surplus buildings, timber, sand, gravel, or stone that 
is not to be used in performing planned development and use net proceeds 
to pay costs of performing planned development work. In such a case:
    (1) An agreement will be recorded in the narrative of Form FmHA or 
its successor agency under Public Law 103-354 1924-1 which as a minimum 
will:
    (i) Identify the property to be sold, the estimated net proceeds to 
be received, and the approximate date by which the property will be 
sold.
    (ii) Provide that the borrower will deposit the net proceeds in the 
supervised bank account and apply any funds remaining after the 
development is complete as an extra payment on the loan, or in 
accordance with Sec.  1965.13(f) of subpart A of part 1965 of this 
chapter for farm program loans.
    (2) The agreement will be considered by the Government as modifying 
the mortgage contract to the extent of authorizing and requiring the 
Government to release the identified property subject to the conditions 
stated in the agreement without payment or other consideration at the 
time of release, regardless of whether or not the mortgage specifically 
refers to Form FmHA or its successor agency under Public Law 103-354 
1924-1 or the agreement to release.
    (3) If the FmHA or its successor agency under Public Law 103-354 
loan will be secured by a junior lien, all prior lienholders must give 
written consent to the proposed sale and the use of the net proceeds 
before the loan is approved.
    (h) Review prior to performing development work. For the sole 
benefit of FmHA or its successor agency under Public Law 103-354, prior 
to beginning development work, the County Supervisor or District 
Director will review planned development with the borrower. Adequacy of 
the drawings and specifications as well as the estimates will be checked 
to make sure the work can be completed within the time limits previously 
agreed upon and with available funds. Items and quantities of any 
materials the borrower has agreed to furnish will be checked and dates 
by which each item of development should be started will be checked in 
order that the work may be completed on schedule. If any changes in the 
plans and specifications are proposed, they should be within the general 
scope of the work as originally planned. Changes must be approved and 
processed in accordance with Sec.  1924.10 of this subpart. The 
appropriate procedure for performing development should be explained to 
the borrower. Copies of FmHA or its successor agency under Public Law 
103-354 forms that will be used during the period of construction should 
be given to the borrower. The borrower should be advised as to the 
purpose of each form and at what period during construction each form 
will be used.
    (i) Time of starting development work. Development work will be 
started as soon as feasible after the loan is closed. Except in cases in 
which advance commitments are made in accordance with 7 CFR part 3550 or 
according to Sec.  1924.13(e)(1)(vi)(A) or Sec.  1924.13(e)(2)(ix)(A) of 
this subpart, no commitments with respect to performing planned 
development will be made by the Agency or the applicant before the loan 
is closed. The applicant will be instructed that before the loan

[[Page 92]]

is closed, debts should not be incurred for labor or materials, or 
expenditures made for such purposes, with the expectation of being 
reimbursed from funds except as provided in subpart A of part 1943 of 
this chapter, 7 CFR part 3550, and subpart E of part 1944 of this 
chapter. However, with the prior approval of the National Office, a 
State Supplement may be issued authorizing County Supervisors to permit 
applicants to commence welldrilling operations prior to loan closing, 
provided:
    (1) It is necessary in the area to provide the water supply prior to 
loan closing,
    (2) The applicant agrees in writing to pay with personal funds all 
costs incurred if a satisfactory water supply is not obtained,
    (3) Any contractors and suppliers understand and agree that loan 
funds may not be available to make the payment,
    (4) Such action will not result under applicable State law in the 
giving of priority to mechanics and materialmen's liens over the later 
recorded FmHA or its successor agency under Public Law 103-354 mortgage, 
and
    (5) FmHA or its successor agency under Public Law 103-354 does not 
guarantee that the cost will be paid.

[52 FR 8002, Mar. 13, 1987, as amended at 52 FR 19283, May 22, 1987; 52 
FR 48391, Dec. 22, 1987; 52 FR 48799, Dec. 28, 1987; 53 FR 43676, Oct. 
28, 1988; 59 FR 43723, Aug. 25, 1994; 61 FR 65156, Dec. 11, 1996; 67 FR 
78326, Dec. 14, 2002]



Sec.  1924.6  Performing development work.

    All construction work will be performed by one, or a combination, of 
the following methods: Contract, borrower, mutual self-help, or owner-
builder. All development work must be performed by a person, firm or 
organization qualified to provide the service. The mutual self-help 
method is performance of work by a group of families by mutual labor 
under the direction of a construction supervisor, as described in 7 CFR 
part 3550.
    (a) Contract method. This method of development will be used for all 
major construction except in cases where it is clearly not possible to 
obtain a contract at a reasonable or competitive cost. Work under this 
method is performed in accordance with a written contract.
    (1) Forms used. Form FmHA or its successor agency under Public Law 
103-354 1924-6, ``Construction Contract,'' will be used for SFH 
construction. Other contract documents for more complex construction, 
acceptable to the loan approval official and containing the requirements 
of subpart E of part 1901 of this chapter, may be used provided they are 
customarily used in the area and protect the interest of the borrower 
and the Government with respect to compliance with items such as the 
drawings, specifications, payments for work, inspections, completion, 
nondiscrimination in construction work and acceptance of the work. If 
needed, the Office of the General Counsel (OGC) will be consulted. The 
United States (including FmHA or its successor agency under Public Law 
103-354) will not become a party to a construction contract or incur any 
liability under it.
    (2) Contract provisions. Contracts will have a listing of 
attachments and the provisions of the contract will include:
    (i) The contract sum.
    (ii) The dates for starting and completing the work.
    (iii) The amount of liquidated damages to be charged.
    (iv) The amount, method, and frequency of payment.
    (v) Whether or not surety bonds will be provided.
    (vi) The requirement that changes or additions must have prior 
written approval of FmHA or its successor agency under Public Law 103-
354.
    (3) Surety requirements. (i) Unless an exception is granted in 
accordance with paragraph (a)(3)(iii) of this section or when interim 
financing will be used, surety that guarantees both payment and 
performance in the amount of the contract will be furnished when one or 
more of the following conditions exist:
    (A) The contract exceeds $100,000.
    (B) The loan approval official determines that a surety bond appears 
advisable to protect the borrower against default of the contractor.
    (C) The applicant requests a surety bond.

[[Page 93]]

    (D) The contract provides for partial payments in excess of the 
amount of 60 percent of the value of the work in place.
    (E) The contract provides for partial payments for materials 
suitably stored on the site.
    (ii) If surety bonds are required the construction contract must 
indicate that the contractor will furnish properly executed surety bonds 
prior to the start of any work. Exhibits F and G of this subpart as 
revised by OGC if necessary to comply with local or state statutory 
requirements will be used as the forms of payment bond and performance 
bond to be provided. Unless noncorporate surety is provided, the surety 
bonds may only be obtained from a corporate bonding company listed on 
the current Department of the Treasury Circular 570 (published annually 
in the Federal Register), as holding a certificate of authority as an 
acceptable surety on Federal bonds and as legally doing business in the 
State where the land is located. Noncorporate sureties are not 
recommended and the State Director will be responsible for determining 
the acceptability of the individual or individuals proposed as sureties 
on the bonds. The State Director must determine that an individual or 
individuals proposed as sureties must have cash or other liquid assets 
easily convertible to cash in an amount at least equal to 25 percent 
more than the contract amount in order to be acceptable. The 
individual(s) will pledge such liquid assets in an amount equal to the 
contract amount. Fees charged for noncorporate sureties may not exceed 
fees charged by corporate sureties on bonds of equal amount and, in no 
case, may surety be provided by the applicant or any person or 
organization with an identity of interest in the applicant's operation. 
The United States (including FmHA or its successor agency under Public 
Law 103-354) will incur no liability related in any way to a performance 
or payment bond provided in connection with a construction contract. 
FmHA or its successor agency under Public Law 103-354 will be named as 
co-obligee in the performance and payment bonds unless prohibited by 
state law.
    (iii) When an experienced and reliable contractor cannot obtain 
payment and performance bonds meeting the surety requirements of 
paragraph (a)(3)(ii) of this section, the State Director may entertain a 
request from the applicant for an exception to the surety requirements. 
The applicant's request must specifically state why the proposed 
contractor is unable to obtain payment and performance bonds meeting the 
surety requirements, and why it is financially advantageous for the 
applicant to award the contract to the proposed contractor without the 
required bonds.

If the applicant's request is reasonable and justified, and if the 
proposed contractor is reliable and experienced in the construction of 
projects of similar size, design, scope, and complexity, the State 
Director may grant an exception to the surety requirements for loans or 
grants within the State Director's approval authority and accept one or 
a combination of the following:
    (A) An unconditional and irrevocable letter of credit issued by a 
lending institution which has been reviewed and approved by OGC. In such 
cases, the construction contract must indicate that the contractor will 
furnish a properly executed letter of credit from a lending institution 
acceptable to FmHA or its successor agency under Public Law 103-354 
prior to the start of any work. The letter of credit must remain in 
effect until the date of final acceptance of work by the owner and FmHA 
or its successor agency under Public Law 103-354. In addition, the 
letter of credit must stipulate that the lending institution, upon 
written notification by FmHA or its successor agency under Public Law 
103-354 of the contractor's failure to perform under the terms of the 
contract, will advance funds up to the amount of the contract (including 
all FmHA or its successor agency under Public Law 103-354 approved 
contract change orders) to satisfy all prior debts incurred by the 
contractor in performing the contract and all funds necessary to 
complete the work. Payments may be made to the contractor in accordance 
with paragraph (a)(12)(i)(C) of this section as if full surety bonds 
were being provided.

[[Page 94]]

    (B) If a letter of credit satisfying the conditions of paragraph 
(a)(3)(iii)(A) of this section cannot be obtained, the State Director 
may accept a deposit in the amount of the contract, into an interest or 
non-interest bearing supervised bank account. In such cases, the 
construction contract must indicate that the contractor will furnish the 
required deposit prior to the start of any work and that the funds shall 
remain on deposit until final acceptance of work by the owner and FmHA 
or its successor agency under Public Law 103-354. Payments may be made 
to the contractor in accordance with paragraph (a)(12)(i)(C) of this 
section as if full surety bonds were being provided.
    (C) When the provisions of paragraph (a)(3)(iii) (A) or (B) of this 
section can be met except that a surety bond, a letter of credit, and/or 
deposits are not obtainable in full amount of the contract, the State 
Director may accept an amount less than the full amount of the contract 
provided all of the following conditions are met:
    (1) The contractor provides a surety bond, a letter of credit, or 
deposits in the greatest amount possible, and provides documentation 
indicating the reasons why amounts exceeding the proposed amount cannot 
be provided.
    (2) The applicant agrees to the amount of the surety bond, letter of 
credit, or deposits proposed, and the State Director determines that the 
applicant has the financial capability to withstand any financial loss 
due to default of the contractor.
    (3) In the opinion of the State Director, the proposed amount and 
the method of payment will provide adequate protection for the borrower 
and the Government against default of the contractor.
    (4) The contract provides for partial payments not to exceed 90 
percent of the value of the work in place for that portion of the total 
contract which is guaranteed by an acceptable surety bond, letter of 
credit, or deposits, and partial payments not to exceed 60 percent of 
the value of the work in place for that portion of the total contract 
which is not guaranteed by surety, letter of credit, or deposits.

    Example:

    Contractor has a surety bond which guarantees payment and 
performance in an amount of $150,000 which represents 75 percent of the 
total contract amount of $200,000. The contractor's first request for 
payment appears thus:

--Value of work in place is $10,000.
--Payment for work guaranteed by surety is 75 percent times $10,000 
times 90 percent is $6,750.
--Payment for work not guaranteed by surety is 25 percent times $10,000 
times 60 percent is $1,500.
--Authorized payment is $8,250.

    (Each partial payment shall reflect values for work guaranteed by 
surety, letter of credit, or deposits, and work not so guaranteed).

    (iv) In cases where the contractor does not obtain payment and 
performance bonds in accordance with the surety requirements of 
paragraph (a)(3)(ii) of this section, or where an exception to the 
surety requirements is granted by the State Director, the following 
steps will be taken to protect the borrower and the government against 
latent obligations or defects in connection with the construction:
    (A) The contractor will furnish a properly executed corporate latent 
defects bond or a maintenance bond in the amount of 10 percent of the 
construction contract; or
    (B) An unconditional and irrevocable letter of credit in the amount 
of 10 percent of the construction contract issued by a lending 
institution which has been reviewed and approved by OGC; or
    (C) A cash deposit into an interest or non-interest bearing 
supervised bank account in the amount of 10 percent of the construction 
contract;
    (D) The period of protection against latent obligations and/or 
defects shall be one year from the date of final acceptance of work by 
the owner and FmHA or its successor agency under Public Law 103-354;
    (E) Final payment shall not be rendered to the contractor until the 
provisions of paragraph (a)(3)(iv) (A), (B) or (C) of this section have 
been met;
    (F) The contract will contain a clause indicating that the 
contractor agrees to provide surety or guarantee acceptable to the owner 
and FmHA or its successor agency under Public Law 103-354 against latent 
obligations and/

[[Page 95]]

or defects in connection with the construction.
    (4) Equal opportunity. Section 1901.205 of subpart E of part 1901 of 
this chapter applies to all loans or grants involving construction 
contracts and subcontracts in excess of $10,000.
    (5) Labor standards provisions. The provisions of the Davis-Bacon 
and related acts, which are published by the Department of Labor (29 CFR 
parts 1, 3 and 5), will apply when the contract involves either LH grant 
assistance, or 9 or more units in a project being assisted under the HUD 
section 8 housing assistance payment program for new construction.
    (6) Historical and archaeological preservation. The provisions of 
subpart F of part 1901 of this chapter concerning the protection of 
historical and archaeological properties will apply to all construction 
financed, in whole or in part, by FmHA or its successor agency under 
Public Law 103-354 loans and grants. These provisions have special 
applicability to development in areas designated by NRCS as Resource 
Conservation and Development (RC&D) areas. (See part 1942, subpart I of 
this chapter.)
    (7) Air and water acts. Under Executive Order 11738, all loans or 
grants involving construction contracts for more than $100,000 must meet 
all the requirements of section 114 of the Clean Air Act (42 U.S.C. 
7414) and section 308 of the Water Pollution Control Act (33 U.S.C., 
section 1813). The contract should contain provisions obligating the 
contractor as a condition for the award of the contract as follows:
    (i) To notify the owner of the receipt of any communication from 
Environmental Protection Agency (EPA) indicating that a facility to be 
utilized in the performance of the contract is under consideration to be 
listed on the EPA list of Violating Facilities. Prompt notification is 
required prior to contract award.
    (ii) To certify that any facility to be utilized in the performance 
of any nonexempt contractor subcontract is not listed on the EPA list of 
Violating Facilities as of the date of contract award.
    (iii) To include or cause to be included the above criteria and 
requirements of paragraphs (a)(7) (i) and (ii) of this section in every 
nonexempt subcontract, and that the contractor will take such action as 
the Government may direct as a means of enforcing such provisions.
    (8) Architectural barriers. In accordance with the Architectural 
Barriers Act of 1968 (Pub. L. 90-480), as implemented by the General 
Services Administration regulations (41 CFR 101- 19.6) and section 504 
of the Rehabilitation Act of 1973 (Pub. L. 93-112) as implemented by 7 
CFR, parts 15 and 15b, all facilities financed with FmHA or its 
successor agency under Public Law 103-354 loans and grants and which are 
accessible to the public or in which people with disabilities may be 
employed or reside must be developed in compliance with this Act. Copies 
of the Act and Federal accessibility design standards may be obtained 
from the Executive Director, Architectural and Transportation Barriers 
Compliance Board, Washington, DC 20201.
    (9) National Environmental Policy Act. The provisions of subpart G 
of part 1940 of this chapter concerning environmental requirements will 
apply to all loans and grants including those being assisted under the 
HUD section 8 housing assistance payment program for new construction.
    (10) Obtaining bids and selecting a contractor. (i) The applicant 
may select a contractor and negotiate a contract or contact several 
contractors and request each to submit a bid. For complex construction 
projects, refer also to Sec.  1924.13(e) of this subpart.
    (ii) When a price has already been negotiated by an applicant and a 
contractor, the County Supervisor, District Director or other 
appropriate FmHA or its successor agency under Public Law 103-354 
official will review the proposed contract. If the contractor is 
qualified to perform the development and provide a warranty of the work 
and the price compares favorably with the cost of similar construction 
in the area, further negotiation is unnecessary. If the FmHA or its 
successor agency under Public Law 103-354 official determines the price 
is too high

[[Page 96]]

or otherwise unreasonable, the applicant will be requested to negotiate 
further with the contractor. If a reasonable price cannot be negotiated 
or if the contractor is not qualified, the applicant will be requested 
to obtain competitive bids.
    (iii) When an applicant has a proposed development plan and no 
contractor in mind, competitive bidding will be encouraged. The 
applicant should obtain bids from as many qualified contractors, dealers 
or tradespeople as feasible depending on the method and type of 
construction.
    (iv) If the award of the contract is by competitive bidding, Form 
FmHA or its successor agency under Public Law 103-354 1924-5, 
``Invitation for Bid (Construction Contract),'' or another similar 
invitation bid form containing the requirements of subpart E of part 
1901 of this chapter, may be used. All contractors from whom bids are 
requested should be informed of all conditions of the contract including 
the time and place of opening bids. Conditions shall not be established 
which would give preference to a specific bidder or type of bidder. When 
applicable, copies of Forms FmHA or its successor agency under Public 
Law 103-354 1924-6 and FmHA or its successor agency under Public Law 
103-354 400-6, ``Compliance Statement,'' also should be provided to the 
prospective bidders.
    (11) Awarding the contract. The borrower, with the assistance of the 
County Supervisor or District Director, will consider the amount of the 
bids or proposals, and all conditions which were listed in the 
``Invitation for Bid.'' On the basis of these considerations, the 
borrower will select and notify the lowest responsible bidder.
    (i) Before work commences, the County Supervisor, District Director 
or other FmHA or its successor agency under Public Law 103-354 employee 
having knowledge of contracts and construction practices will hold a 
preconstruction conference with the borrower(s), contractor and 
architect/engineer (if applicable). The purpose of the conference is to 
reach a mutual understanding of each party's responsibilities under the 
terms and conditions of the contract documents and the loan agreement 
during the construction and warranty periods. Form FmHA or its successor 
agency under Public Law 103-354 1924-16, ``Record of Preconstruction 
Conference,'' may be used as a guide for an agenda.
    (ii) A summary of the items covered will be entered in the running 
case record.
    (iii) The contract will then be prepared, signed and copies 
distributed in accordance with the FMI for Form FmHA or its successor 
agency under Public Law 103-354 1924-6.
    (iv) After a borrower/contractor's contract or subcontract in excess 
of $10,000 is received in the FmHA or its successor agency under Public 
Law 103-354 County or District Office, the responsible FmHA or its 
successor agency under Public Law 103-354 official will send within 10 
calendar days of the date of the contract or subcontract, a report 
similar in form and content to exhibit C of subpart E of part 1901 of 
this chapter to the Area Director, Office of Federal Contract Compliance 
Programs, U.S. Department of Labor, at the applicable address listed in 
exhibit E, subpart E of part 1901 of this chapter. The report must 
contain, at least, the following information: contractor's name, address 
and telephone number; employer's identification number; amount, starting 
date and planned completion date of the contract; contract number; and 
city and DOL region of the contract site. The information for this 
report should be obtained from the contractor when the contract is 
awarded.
    (12) Payments for work done by the contract method. (i) Payments 
will be made in accordance with one of the following methods unless 
prohibited by state statute, in which case the State Director shall 
issue a State Supplement to this section:
    (A) The ``One-Lump-Sum'' payment method will be used when the 
payment will be made in one lump-sum for the whole contract.
    (B) The ``Partial payments not to exceed 60 percent of the value of 
the work in place'' payment method will be used when the contractor does 
not provide surety bond, a letter of credit, or deposits.
    (C) The ``Partial payments in the amount of 90 percent of the value 
of

[[Page 97]]

the work in place and of the value of the materials suitably stored at 
the site'' payment method will be used when the contractor provides a 
surety bond equal to the total contract amount.
    (D) The ``Partial payments which reflect the portions of the 
contract amount which is guaranteed'' method will be used when the 
contractor provides surety bonds, a letter of credit, or deposits less 
than the total amount of the contract in accordance with the provisions 
of paragraph (a)(3)(iii)(C) of this section.
    (ii) When Form FmHA or its successor agency under Public Law 103-354 
1924-6 is used, the appropriate payment clause will be checked and the 
other payment clauses not used will be effectively crossed out.
    (iii) When a contract form other than Form FmHA or its successor 
agency under Public Law 103-354 1924-6 is used, the payment clause must 
conform with paragraph (a)(12)(i) of this section and the appropriate 
clause as set forth in Form FmHA or its successor agency under Public 
Law 103-354 1924-6.
    (iv) The borrower and FmHA or its successor agency under Public Law 
103-354 must take precautionary measures to see that all payments made 
to the contractor are properly applied against bills for materials and 
labor procured under the contract. Prior to making any partial payment 
on any contract where a surety bond is not used, the contractor will be 
required to furnish the borrower and the FmHA or its successor agency 
under Public Law 103-354 with a statement showing the total amount owed 
to date for materials and labor procured under the contract. The 
contractor also may be required to submit evidence showing that previous 
partial payments were applied properly. When the borrower and the County 
Supervisor or District Director have reason to believe that partial 
payments may not be applied properly, checks may be made jointly to the 
contractor and persons who furnished materials and labor in connection 
with the contract.
    (v) When partial payments are requested by the contractor and 
approved by the owner, the amount of the partial payment will be 
determined by one of the following methods:
    (A) Based upon the percentage completed as shown on a recently 
completed and properly executed Form FmHA or its successor agency under 
Public Law 103-354 1924-12, ``Inspection Report.''
    (B) When the structure will be covered by an insured 10-year 
warranty, the insurer's construction inspector must provide FmHA or its 
successor agency under Public Law 103-354 with any available copies of 
inspection reports showing percentage of completion immediately after 
the inspections are completed. To make partial payments when copies of 
inspection reports are not available, the responsible FmHA or its 
successor agency under Public Law 103-354 official will make the 
inspections or will be guided by the provisions of Sec.  
1924.6(a)(12)(v)(C) of this subpart. If further assurance is deemed 
necessary to justify partial payments, the FmHA or its successor agency 
under Public Law 103-354 official may make onsite inspections or require 
additional information.
    (C) Based upon an application for payment containing an estimate of 
the value of work in place which has been prepared by the contractor and 
accepted by the borrower and FmHA or its successor agency under Public 
Law 103-354. When the contract provides for partial payments for 
materials satisfactorily stored at the site, the application for payment 
may include these items. Prior to receiving the first partial payment, 
the contractor should be required to submit a list of major 
subcontractors and suppliers and a schedule of prices or values of the 
various phases of the work aggregating the total sum of the contract 
such as excavation, foundations, framing, roofing, siding, mill work, 
painting, plumbing, heating, electric wiring, etc., made out in such 
form as agreed upon by the borrower, FmHA or its successor agency under 
Public Law 103-354, and the contractor. In applying for payments, the 
contractor should submit a statement based upon this schedule. See 
exhibit A of this subpart for guidance in reviewing the contractor's 
schedule of prices and estimating the value of the work in place.

[[Page 98]]

    (vi) Final payment. (A) When the structure will be covered by an 
insured 10-year warranty, the insurer must provide an insured 10-year 
warranty policy (or a binder if the policy is not available) before 
final payment is made to the builder.
    (B) Final payment of the amount due on the contract or disbursal of 
the FmHA or its successor agency under Public Law 103-354 loan funds 
where an interim loan was used will be made only upon completion of the 
entire contract, final inspection by FmHA or its successor agency under 
Public Law 103-354, acceptance of the work by FmHA or its successor 
agency under Public Law 103-354 and the borrower, issuance of any and 
all final permits and approvals for the use and occupancy of the 
structure by any applicable state and local governmental authorities, 
and compliance by the contractor with all terms and conditions of the 
contract. In the event the work of construction is delayed or 
interrupted by reason of fire, flood unusually stormy weather, war, 
riot, strike, an order, requisition or regulation of any governmental 
body (excluding delays related to possible defects in the contractor's 
performance and excluding delays caused by the necessity of securing 
building permits or any required inspection procedures connected 
therewith) or other contingencies reasonably unforeseeable and beyond 
the reasonable control of the contractor, then with the written consent 
of FmHA or its successor agency under Public Law 103-354, the date of 
completion of the work may be extended by the owner by the period of 
such delay, provided that the contractor shall give the owner and FmHA 
or its successor agency under Public Law 103-354 written notice within 
72 hours of the occurrence of the event causing the delay or 
interruption.
    (C) Prior to making final payment on the contract when a surety bond 
is not used or disbursing the FmHA or its successor agency under Public 
Law 103-354 loan funds when an interim loan was used, FmHA or its 
successor agency under Public Law 103-354 will be provided with a Form 
FmHA or its successor agency under Public Law 103-354 1924-9, 
``Certificate of Contractor's Release,'' and Form FmHA or its successor 
agency under Public Law 103-354 1924-10, ``Release by Claimants.'' 
executed by all persons who furnished materials or labor in connection 
with the contract. The borrower should furnish the contractor with a 
copy of the ``Release by Claimants'' form at the beginning of the work 
in order that the contractor may obtain these releases as the work 
progresses.
    (1) If such releases cannot be obtained, the funds may be disbursed 
provided all the following can be met:
    (i) Release statements to the extent possible are obtained;
    (ii) The interests of FmHA or its successor agency under Public Law 
103-354 can be adequately protected and its security position is not 
impaired; and
    (iii) Adequate provisions are made for handling the unpaid account 
by withholding or escrowing sufficient funds to pay any such claims or 
obtaining a release bond.
    (2) The State Director may issue a State Supplement which will:
    (i) Not require the use of Form FmHA or its successor agency under 
Public Law 103-354 1924-10, if, under existing state statutes, the 
furnishing of labor and materials gives no right to a lien against the 
property, or
    (ii) Provide an alternative method to protect against mechanic's and 
materialmen's liens. In this case, the use of Form FmHA or its successor 
agency under Public Law 103-354 1924-10 is optional.
    (b) Borrower method. The borrower method means performance of work 
by or under the direction of the borrower, using one or more of the ways 
specified in this paragraph. Development work may be performed by the 
borrower method only when it is not practicable to do the work by the 
contract method; the borrower possesses or arranges through an approved 
self-help plan for the necessary skill and managerial ability to 
complete the work satisfactorily; such work not interfere seriously with 
the borrower's farming operation or work schedule, and the County Office 
caseload will permit a County Supervisor to properly advise the borrower 
and inspect the work.
    (1) Ways of performing the work. The borrower will:

[[Page 99]]

    (i) Purchase the material and equipment and do the work.
    (ii) Utilize lump-sum agreements for (A) minor items or minor 
portions of items of development, the total cost of which does not 
exceed $5,000 per agreement, such as labor, material, or labor and 
material for small service buildings, repair jobs, or land development; 
or (B) material and equipment which involve a single trade and will be 
installed by the seller, such as the purchase and installation of 
heating facilities, electric wiring, wells, painting, liming, or 
sodding. All agreements will be in writing, however, the County 
Supervisor may make an exception to this requirement when the agreement 
involves a relatively small amount.
    (2) Acceptance and storage of material on site. The County 
Supervisor will advise the borrower that the acceptance of material as 
delivered to the site and the proper storage of material will be the 
borrower's responsibility.
    (3) Payment for work done by the borrower method--(i) Payments for 
labor. Before the County Supervisor countersigns checks for labor, the 
borrower must submit a completed Form FmHA or its successor agency under 
Public Law 103-354 1924-11, ``Statement of Labor Performed,'' for each 
hired worker performing labor during the pay period. Ordinarily, checks 
for labor will be made payable to the workers involved. However, under 
justifiable circumstances, when the borrower has paid for labor with 
personal funds and has obtained signatures of the workers on Form FmHA 
or its successor agency under Public Law 103-354 1924-11 as having 
received payment, the County Supervisor may countersign a check made 
payable to the borrower for reimbursement of these expenditures. Under 
no circumstances will the County Supervisor permit loan funds or funds 
withdrawn from the supervised bank account to be used to pay the 
borrower for the borrower's own labor or labor performed by any member 
of the borrower's household.
    (ii) Payment for equipment, materials or lump-sum agreements. (A) 
Before countersigning checks for equipment or materials, the County 
Supervisor must normally have an invoice from the seller covering the 
equipment or materials to be purchased. When an invoice is not available 
at the time the check is issued, an itemized statement of the equipment 
or materials to be purchased may be substituted until a paid invoice 
from the seller is submitted, at which time the prepurchase statement 
may be destroyed.
    (B) When an invoice is available at the time the check is drawn, the 
check will include a reference to the invoice number, the invoice date 
if unnumbered and, if necessary, the purpose of the expenditure.
    (C) The check number and date of payment will be indicated on the 
appropriate Form FmHA or its successor agency under Public Law 103-354 
1924-11, invoice, itemized statement of equipment or materials and/or 
lump-sum agreement.
    (D) Ordinarily, checks for equipment or materials will be made 
payable to the seller. Under justifiable circumstances, when the 
borrower has paid for equipment or materials with personal funds and 
furnished a paid invoice, the County Supervisor may countersign a check 
made payable to the borrower for reimbursement of these expenses.
    (E) When an invoice includes equipment or materials for more than 
one item of development, the appropriate part of the cost to be charged 
against each item of development will be indicated on the invoice by the 
borrower, with the assistance of the County Supervisor.
    (F) Payment made under lump-sum agreements will be made only when 
all items of equipment and materials have been furnished, labor has been 
performed as agreed upon, and the work has been accepted by the borrower 
and FmHA or its successor agency under Public Law 103-354.
    (G) Each paid Form FmHA or its successor agency under Public Law 
103-354 1924-11, invoice, itemized statement for equipment or material 
and/or lump-sum agreement will be given to the borrower in accordance 
with the FMI.
    (c) Mutual self-help method. The mutual self-help method is 
performance of work by a group of families by mutual labor under the 
direction of a construction supervisor, as described in 7 CFR part 3550. 
The ways of doing the work,

[[Page 100]]

buying materials, and contracting for special services are like those 
used for the borrower method. Materials can be bought jointly by the 
group of families, but payments will be made individually by each 
family. In the case of RH loans to families being assisted by Self-Help 
Technical Assistance (TA) grants in accordance with subpart I of part 
1944 of this chapter, the County Supervisor may countersign checks for 
materials and necessary contract work made payable directly to the TA 
grantee, provided the District Director determines that:
    (1) The grantee acts in the same capacity as a construction manager 
in the group purchase of material and services.
    (2) The grantee has an adequate bookkeeping system approved by the 
District Director to assure that funds in each RH account are properly 
distributed and maintained.
    (3) The grantee receives no compensation in the way of profit or 
overhead for this service and all discounts and rebates received in 
connection with the purchase of materials or services are passed on to 
the participating families.
    (4) The grantee has a record-keeping system which shows that the 
costs of the materials and services were prorated to each borrower's 
account in relation to the actual material and service used by each 
borrower.
    (d) Owner-builder method. This method of construction applies only 
to RRH loans made under subpart E of part 1944 of this chapter. 
Regulations governing this method are found at Sec.  1924.13(e)(2) of 
this subpart.

[52 FR 8002, Mar. 13, 1987, as amended at 55 FR 41833, Oct. 16, 1990; 60 
FR 55122, Oct. 27, 1995; 61 FR 56116, Oct. 31, 1996]



Sec.  1924.7  [Reserved]



Sec.  1924.8  Development work for modular/panelized housing units.

    (a) Exhibit B of this subpart applies to all loans involving 
modular/panelized housing units.
    (b) Complete drawings and specifications will be required as 
prescribed in exhibit C of this subpart. Each set of drawings will 
contain the design of the foundation system required for the soil and 
slope conditions of the particular site on which the modular/panelized 
house is to be placed.
    (c) The manufacturer will provide a certification (exhibit B, 
attachment 5 of this subpart), stating that the building has been built 
substantially in accordance with the drawings and specifications. The 
builder will also provide a certification that the onsite work complies 
with drawings, specifications, and the applicable development standard 
(eExhibit B, attachment 5 of this subpart).
    (d) Responsibility for field inspections will be in accordance with 
Sec.  1924.9(a) of this subpart. Frequency and timing of inspections 
will be in accordance with Sec.  1924.9(b) of this subpart, except that 
the Stage 2 inspection should be made during the time and in no case 
later than two working days after the crews commence work on the site 
and the house is being erected or placed on the foundation, to determine 
compliance with the accepted drawings and specifications.
    (e) Periodic plant inspections will be performed in accordance with 
paragraphs II and III of exhibit B of this subpart. FmHA or its 
successor agency under Public Law 103-354 employees responsible for 
inspections in the area in which the manufacturing plant or material 
supply yard is located will perform such inspections as deemed necessary 
under paragraph III of exhibit B of this subpart.
    (1) Plant inspections will be made if the type construction method 
used could restrict adequate inspections on the building site.
    (2) Plant inspections will be made as often as necessary; however, 
after initial inspection and acceptance of the unit, only when it 
appears advisable to ascertain the performance and continuing stability 
of accepted materials and construction.
    (f) Only one contract will be accepted for the completed house on 
the site owned or to be bought by the borrower. The manufacturer of the 
house or the manufacturer's agent may be the prime contractor for 
delivery and erection of the house on the site or a builder may contract 
with the borrower for the complete house in place on the site. Such 
contracts should provide that

[[Page 101]]

payments will be made only for work in place on the borrower's site.
    (g) Payments for modular/panelized units will be made in accordance 
with the terms of the contract and in compliance with Sec.  
1924.6(a)(12) of this subpart.



Sec.  1924.9  Inspection of development work.

    The following policies will govern the inspection of all development 
work.
    (a) Responsibility for inspection. The County Supervisor or District 
Director, accompanied by the borrower when practicable, will make final 
inspection of all development work and periodic inspections as 
appropriate to protect the security interest of the government. In this 
respect, inspections other than final inspections, may be conducted by 
other qualified persons as authorized in paragraph (d) of this section, 
in 7 CFR part 3550, in RD Instruction 2024-A (available in any Rural 
Development office), and as authorized under other agreements executed 
by, or authorized by, the National Office.

The borrower will be responsible for making inspections necessary to 
protect the borrower's interest. RHS or its successor agency under 
Public Law 103-354 inspections are not to assure the borrower that the 
house is built in accordance with the plans and specifications. The 
inspections create or imply no duty or obligation to the particular 
borrower. RHS or its successor agency under Public Law 103-354 
inspections are for the dual purpose of determining that RHS or its 
successor agency under Public Law 103-354 has adequate security for its 
loan and is achieving the statutory goal of providing adequate housing. 
If difficult technical problems are encountered, the County Supervisor 
or District Director should request the assistance of the State Office 
or a qualified technician from SCS or the State University Cooperative 
Extension Service.
    (b) Frequency of inspections. The County Supervisor or District 
Director will inspect development work as frequently as necessary to 
assure that construction and land development conforms to the drawings 
and specifications. The final inspection will be made at the earliest 
possible date after completion of the planned development. When several 
major items of development are involved, final inspection will be made 
upon completion of each item.
    (1) For new buildings and additions to existing buildings, 
inspections will be made at the following stages of construction and at 
such other stages of construction as determined by the County Supervisor 
or District Director except as modified by paragraph (b)(3) of this 
section.
    (i) Stage 1. Customarily, the initial inspection in construction 
cases is made just prior to or during the placement of concrete footings 
or monolithic footings and floor slabs. At this point, foundation 
excavations are complete, forms or trenches and steel are ready for 
concrete placement and the subsurface installation is roughed in. 
However, when it is not practicable to make the initial inspection prior 
to or during the placement of concrete, the County Supervisor or 
District Director will make the initial inspection as soon as possible 
after the placement of concrete and before any backfill is in place.
    (ii) Stage 2. The Stage 2 inspection will be made when the building 
is enclosed, structural members are still exposed, roughing in for 
heating, plumbing, and electrical work is in place and visible, and wall 
insulation and vapor barriers are installed. Customarily, this is prior 
to installation of brick veneer or any interior finish which would 
include lath, wallboard and finish flooring.
    (iii) Stage 3. The final inspection will be made when all on-site 
and off-site development has been completed and the structure is ready 
for occupancy or its intended use.
    (2) For rehabilitation of existing buildings, inspections will be 
made in accordance with paragraphs (b)(1) (ii) and (iii) of this 
section, and at such other stages of construction to assure that 
construction is being performed in a professional manner and in 
accordance with the FmHA or its successor agency under Public Law 103-
354 approved drawings and specifications.
    (3) For new construction when the structure will be covered by an 
insured 10-year warranty plan as described in exhibit L of this subpart, 
only the final

[[Page 102]]

inspection is required, except in cases when partial payments are 
required when the provisions of Sec.  1924.6(a)(12)(v) of this subpart 
will be followed.
    (4) Arrangements should be made to have the borrower join the County 
Supervisor or the District Director in making periodic inspections as 
often as necessary to provide a mutual understanding with regard to the 
progress and performance of the work.
    (5) The Borrower should make enough periodic visits to the site to 
be familiar with the progress and performance of the work, in order to 
protect the borrower's interest. If the borrower observes or otherwise 
becomes aware of any fault or defect in the work or nonconformance with 
the contract documents, the borrower should give prompt written notice 
thereof to the contractor with a copy to the County Supervisor or 
District Director responsible for servicing the type of loan or grant 
involved.
    (6) The borrower should, when practicable, join the County 
Supervisor or District Director in making all final inspections.
    (7) When irrigation equipment and materials are to be purchased and 
installed, a performance test under actual operating conditions by the 
person or firm making the installation should be required before final 
acceptance is made. The test should be conducted in the presence of the 
borrower, a qualified technician, and, when practicable, the County 
Supervisor or District Director. If the FmHA or its successor agency 
under Public Law 103-354 official is not present at the performance 
test, he or she should request the technician to furnish a report as to 
whether or not the installation meets the requirements of the plans and 
specifications.
    (8) For irrigation and drainage construction or any dwelling 
construction where part or all of the work will be buried or backfilled, 
interim inspections should be made at such stages of construction that 
compliance with plans and specifications can be determined.
    (c) Recording inspections and correction of deficiencies. All 
periodic and final inspections made by the County Supervisor or District 
Director will be recorded on Form FmHA or its successor agency under 
Public Law 103-354 1924-12 in accordance with the FMI. The County 
Supervisor or District Director will be responsible for following up on 
the correction of deficiencies reported on Form FmHA or its successor 
agency under Public Law 103-354 1924-12. When an architect/engineer is 
providing services on a project, the District Director should notify the 
architect/engineer immediately of any fault or defect observed in the 
work or of any nonconformance with the contract document. If the 
borrower or the contractor refuses to correct the deficiencies, the 
District Director will report the facts to the State Director who will 
determine the action to be taken. No inspection will be recorded as a 
final inspection until all deficiencies or nonconforming conditions have 
been corrected.
    (d) Acceptance by responsible public authority. When local (city) 
county, state, or other public authority) codes and ordinances require 
inspections, final acceptance by the local authority having jurisdiction 
will be required prior to final inspection or acceptance by FmHA or its 
successor agency under Public Law 103-354.
    (e) Acceptance by project architect. If architectural services 
pursuant to Sec.  1924.13(a) of this subpart have been obtained, final 
acceptance by the project architect pursuant to Sec.  1924.13(a)(5)(v) 
of this subpart will be required prior to acceptance by FmHA or its 
successor agency under Public Law 103-354.

[52 FR 8002, Mar. 13, 1987, as amended at 60 FR 55122, Oct. 27, 1995; 61 
FR 2899, Jan. 30, 1996; 67 FR 78327, Dec. 24, 2002]



Sec.  1924.10  Making changes in the planned development.

    The borrower may request changes in the planned development in 
accordance with this section.
    (a) Authority of the County Supervisor. The County Supervisor is 
authorized to approve changes in the planned development involving loans 
and grants within the County Supervisor's approval authority provided:
    (1) The change is for an authorized purpose and within the scope of 
the original proposal.

[[Page 103]]

    (2) Sufficient funds are deposited in the borrower's supervised bank 
account or with the interim lender, as appropriate, to cover the 
contemplated changes when the change involves additional funds to be 
furnished by the borrower.
    (3) The change will not adversely affect the soundness of the 
operation or FmHA or its successor agency under Public Law 103-354's 
security. If uncertain as to the probable effect the change would have 
on the soundness of the operation or FmHA or its successor agency under 
Public Law 103-354 security, the County Supervisor will obtain advice 
from the District Director on whether to approve the change.
    (4) If a surety bond has been provided on the full amount of the 
construction contract, the aggregate amount of all contract change 
orders on Form FmHA or its successor agency under Public Law 103-354 
1924-7, ``Contract Change Order,'' or other acceptable form will not 
exceed 20 percent of the original contract amount. Change orders for 
contracts on which a surety bond has been provided which increases the 
original contract amount by more than 20 percent may only be approved if 
additional surety is provided in the full revised amount of the 
contract. For purposes of this paragraph, letters of credit and deposits 
are not considered surety.
    (5) Change orders for contracts on which letters of credit or 
deposits have been provided on the full amount of the contract which 
will increase the original contract amount are approved only if 
additional letters of credit or deposits are provided in the full 
revised amount of the contract.
    (6) Modifications have been certified in accordance with Sec.  
1924.5(f)(1)(iii) or certification has been waived in accordance with 
Sec.  1924.5(f)(1)(iii)(C) of this subpart.
    (b) Authority of the District Director. The District Director is 
authorized to approve changes in the development planned with RRH, RCH, 
and RHS loans and LH loans and grants within the District Director's 
approval authority, provided the conditions in Sec.  1924.10(a) have 
been met. For such loans in excess of the District Director's approval 
authority, the borrower's request with the District Director's 
recommendation will be forwarded to the State Director for 
consideration.
    (c) Recording changes in the planned development. (1) Changes should 
be accomplished only after FmHA or its successor agency under Public Law 
103-354 written approval. Changes will not be included in payment 
requests until approved by the borrower; the contractor, if applicable; 
the architect/engineer, if applicable; and the FmHA or its successor 
agency under Public Law 103-354 loan approval official. Examples of 
changes requiring documentation are:
    (i) Any changes in labor and materials and their respective costs.
    (ii) Changes in facility design.
    (iii) Any decrease or increase in unit-price on final measurements 
that are different from those shown in the bidding schedule.
    (iv) Any increase or decrease in the time to complete the project.
    (2) All changes shall be recorded in chronological order as follows:
    (i) Contract method. Changes shall be numbered in sequence as they 
occur using Form FmHA or its successor agency under Public Law 103-354 
1924-7 with necessary attachments.
    (ii) Borrower method. An increase or decrease in the cash cost, 
extension of time, transfer of funds between items, or an addition or 
deletion of items of development, will be summarized on the front of 
Form FmHA or its successor agency under Public Law 103-354 1924-1 by 
striking through the original figures on items and writing in the 
changes. Changes made in the ``Development Plan'' in the working 
drawings, or in the plans and specifications will be dated and initialed 
by all parties.
    (iii) Mutual self-help method. [See paragraph (c)(2)(ii) of this 
section.]
    (iv) Owner-builder method. [See paragraph (c)(2)(i) of this 
section.]
    (3) All changes in facility design and/or materials must be 
certified in accordance with Sec.  1924.5(f)(1)(iii) of this subpart.



Sec.  1924.11  District Director's review of incomplete development.

    During monthly District Office work organization meetings and during 
regular visits to the County Office, the

[[Page 104]]

District Director will review the progress that is being made in 
completing development financed with loans within the District 
Director's and County Supervisor's responsibility.
    (a) Once each year the District Director will make a comprehensive 
review of all development work not completed within the time scheduled. 
For incomplete development financed with loan or grant funds within the 
responsibility of the District Director, the District Director will take 
the necessary actions to assure that the borrower or grantee completes 
the planned development. For incomplete development financed with loan 
or grant funds within the responsibility of the County Supervisor, the 
District Director will give the necessary direction to the County 
Supervisor to assure completion of the work. In connection with these 
responsibilities, the District Director will consider:
    (1) The current farm and home operations with respect to the need 
for the development as originally planned.
    (2) Revisions to the development plan.
    (3) Funds remaining in the supervised bank account.
    (4) Need for additional funds.
    (5) Personal funds that could be furnished by the borrower.
    (6) Estimated completion dates.
    (7) The borrower's attitude with respect to completing the 
development.
    (b) After a complete review of the status of development in both the 
District and County Offices has been made, the District Director will 
make a written report to the State Director which will include 
observations and recommendations regarding incomplete development. The 
report may be included in the District Director's regular report, and 
will include:
    (1) The number of cases in which borrowers have not completed their 
development within 9, 15 or 24 months when authorized, and also the 
number of cases in which funds have been exhausted and the work is 
incomplete.
    (2) The number of borrowers who have not completed their development 
within 3 years from the loan closing, and indicate the action that was 
taken in each such case.
    (c) If the borrower has not completed development work within 3 
years after the date of loan closing and the District Director has 
determined that the borrower cannot or will not complete the 
development, the District Director will so indicate on Form FmHA or its 
successor agency under Public Law 103-354 1924-1 and request the State 
Director to withdraw, for application on the loan, any unused 
development funds remaining in the borrower's supervised bank account, 
if the borrower will not sign a check for a refund to the loan account.



Sec.  1924.12  Warranty of development work.

    (a) Form FmHA or its successor agency under Public Law 103-354 1924-
19, ``Builder's Warranty,'' or an insured 10-year home warranty as 
described in exhibit L of this subpart, and normal trade warranties on 
items of equipment will be issued to the borrower at the completion of 
new building construction, dwelling rehabilitation by the contract 
method, all cases of newly completed and previously unoccupied dwellings 
or construction under conditional commitments issued to builders and 
sellers.
    (b) If the warranty is not an insured 10-year warranty, a completed 
Form FmHA or its successor agency under Public Law 103-354 1924-19, with 
warranty protection for 1 year, must be provided by the builder upon 
final acceptance of the work by the owner and FmHA or its successor 
agency under Public Law 103-354. If an insured 10-year warranty is 
provided, the requirements of exhibit L of this subpart apply, and a 
copy of the warranty insurance policy or a binder must have been 
received by FmHA or its successor agency under Public Law 103-354 prior 
to disbursement of the final payment to the builder.
    (c) If, for some reason, the warranty insurance policy cannot be 
issued, the contractor will be required to execute Form FmHA or its 
successor agency under Public Law 103-354 1924-19 and the case will be 
forwarded to the State Director for consideration of debarment under the 
provisions of subpart M of part 1940 (available in any FmHA or its 
successor agency under Public Law

[[Page 105]]

103-354 office). The County Supervisor will assist the borrower to the 
extent necessary under the provisions of the warranty and subpart F of 
part 1924 of this chapter.
    (d) The County Supervisor will take the following action prior to 
the expiration of the first year of the warranty period:
    (1) As soon as the warranty has been executed, the follow-up date 
for sending Form FmHA or its successor agency under Public Law 103-354 
1924-21, ``Notice of Expiration of First Year of Warranty,'' which will 
be used for the 1 year warranty or the first year of the insured 10-year 
warranty, will be posted to the ``Servicing and Supervision'' section of 
the Management System card.
    (2) Form FmHA or its successor agency under Public Law 103-354 1924-
21 is provided for use in notifying the borrower of the expiration date 
of the first year of the warranty. This letter will be mailed to the 
borrower early in the second month preceding the expiration date of the 
first year of the warranty period.
    (3) If the County Supervisor or District Director does not hear from 
the borrower within 30 days, it can reasonably be assumed that no 
complaint exists or that any complaint has been satisfied unless 
information to the contrary has been received.
    (4) If the borrower notifies FmHA or its successor agency under 
Public Law 103-354 that any complaint has not been satisfied, an onsite 
inspection shall be made as early as possible, but not later than 1 
month preceding the expiration date of the first year of the warranty. 
The results of the inspection will be recorded on Form FmHA or its 
successor agency under Public Law 103-354 1924-12. If the borrower has 
complaints, the case should be handled in accordance with the provisions 
of subpart F of part 1924 of this chapter, or as otherwise provided in 
this subpart.

[52 FR 8002, Mar. 13, 1987, as amended at 54 FR 14334, Apr. 11, 1989]



Sec.  1924.13  Supplemental requirements for more complex construction.

    This section includes additional provisions that apply to planning 
and conduct of construction work on all multiple family housing projects 
and other projects that are more extensive in scope and more complex in 
nature than individual housing units or farm buildings. This section 
will apply in addition to all other requirements contained elsewhere in 
this subpart.
    (a) Architectural services. Complete architectural services, as 
defined in Sec.  1924.4(o)(1) of this subpart are recommended on all 
projects. They are required for projects involving an LH grant and for 
all loans for RRH, RCH, and LH projects consisting of more than 4 units 
unless prior consent to making an exception to the requirements for 
complete architectural services is obtained from the National Office. If 
the applicant or contractor is an architect or organization with 
architectural capability, the applicant must, nevertheless, hire an 
independent qualified architect or architectural firm to inspect the 
construction work and perform other needed services during the 
construction and warranty phases. See Guide 4, attachment 1, 
``Attachment to AIA Document--Standard Form of Agreement Between Owner 
and Architect,'' for further information (available in any FmHA or its 
successor agency under Public Law 103-354 office).
    (1) Exception. Any request for National Office consent to an 
exception being made for complete architectural services should include 
the proposed drawings and specifications, method of providing specific 
services, the comments and recommendations of the FmHA or its successor 
agency under Public Law 103-354 State Architect, and any other pertinent 
information. The State Director must determine that any services for 
which an exception is requested can be performed by qualified State or 
District Office staff members.
    (2) Selecting the architect. The applicant is responsible for 
selecting the architect. The District Director with the advice of the 
State architect/engineer should discuss with the applicant the selection 
of the architect for the job as early as possible to assist in the site 
selection and participate in early consultations regarding project scope 
and design.

[[Page 106]]

    (3) Architectural fees. Fees for architectural services shall not 
exceed the fee ordinarily charged by the profession for similar work 
when FmHA or its successor agency under Public Law 103-354 financing is 
not involved. The fee should cover only the architectural services 
rendered by the architect. The reduction or elimination of any services 
described in paragraph (a)(5) of this section shall be directly 
reflected in the fee. Fees for special services rendered by the 
architects, such as the packaging of the loan application or additional 
nonarchitectural services, will not be authorized to be paid with loan 
funds.
    (4) Agreement between borrower and architect. The borrower and the 
architect will execute a written agreement. The agreement must provide:
    (i) The services listed in paragraph (a)(5) of this section.
    (ii) The amount of the fee and how it will be determined and paid.
    (iii) That the agreement and any amendments to the agreement shall 
not be in full force and effect until concurred with in writing by the 
State Director or the State Director's delegate, and it will contain the 
following provision:

    The Farmers Home Administration or its successor agency under Public 
Law 103-354, as potential lender or insurer of funds to defray the costs 
of this agreement and without liability for any payments thereunder, 
hereby concurs in the form, content and the execution of this agreement.

Date____________________________________________________________________
FmHA or its successor agency under Public Law 103-354 Approval Official_
Title___________________________________________________________________

    (5) Specific services. Architectural services will include six 
consecutive phases as follows:
    (i) Schematic design phase. The architect will:
    (A) Consult with the applicant to obtain available information 
pertinent to the project requirements.
    (B) Consult with FmHA or its successor agency under Public Law 103-
354 State architect/engineer about FmHA or its successor agency under 
Public Law 103-354 requirements and procedures.
    (C) Assist in preparing the project design after analyzing 
engineering and survey data on the site selected by applicant.
    (D) Prepare schematic design studies consisting of drawings and 
other documents illustrating the scale and relationship of project 
components for the applicant's approval.
    (E) Submit estimates of current development costs based on current 
area, volume, or other unit costs.
    (F) When the applicant and FmHA or its successor agency under Public 
Law 103-354 have accepted the schematic design studies and estimated 
development costs, the project architect may be authorized to proceed 
with the next phase.
    (ii) Design development phase. The architect will:
    (A) Prepare the design development exhibits from the accepted 
schematic design studies for approval by the applicant. These exhibits 
should consist of drawings and other documents to fix and describe the 
size and character of the entire project as to structural, mechanical, 
and electrical systems, materials, and other essentials as appropriate.
    (B) Submit a further statement of probable construction cost.
    (C) Obtain applicant and FmHA or its successor agency under Public 
Law 103-354 approval of drawings, specifications, and authorization to 
proceed with next phase.
    (iii) Construction documents phase. The architect will:
    (A) Prepare the working drawings and specifications from the 
approved design development drawings and set forth in detail the 
requirements for the construction of the entire project in accordance 
with applicable regulations and codes; for example, necessary bidding 
information, assistance in preparing bidding forms, conditions of the 
construction contract, and the form of agreement between applicant/owner 
and contractor.
    (B) Submit a final and more comprehensive statement of probable 
development cost. It should show a breakdown of the estimated total 
development cost of the project and the various trades in enough detail 
for an adequate review.
    (C) Obtain the acceptance of the applicant and FmHA or its successor

[[Page 107]]

agency under Public Law 103-354 for contract documents, including 
approval of the final drawings and specifications and authorization to 
proceed.
    (D) Discuss with the applicant various items as they develop.
    (iv) Bidding or negotiation phase. The architect will, as 
appropriate, for a bidded or negotiated contract:
    (A) Assist in review and selection of bidders and submission of 
contract documents to selected bidders.
    (B) Assist in the interpretation of drawings and specifications, and 
other contract documents.
    (C) Receive and tabulate all bids.
    (D) Review the bids and the negotiated proposals and assist in the 
award and preparation of construction contracts.
    (v) Construction phase. This phase includes the administration of 
the construction contract. It will commence with the award of the 
construction contract and end when the borrower makes final payment to 
the contractor. The architect will:
    (A) Attend the preconstruction conference. Advise and consult with 
the borrower (or the borrower's representative) and issue the borrower's 
instructions to the contractor.
    (B) Prepare change orders.
    (C) Keep construction accounts and work as the general administrator 
of the project during construction.
    (D) Interpret the contract documents and have the authority to 
reject all work and materials which do not comply.
    (E) Review and approve shop drawings, samples, and other submissions 
of the contractor for conformance with the design concept and for 
compliance with the contract documents.
    (F) Conduct periodic inspections of all phases of construction to 
determine compliance with the contract documents and certify as to the 
amount is in place and materials suitably stored on site for partial 
payment estimates. These inspections will be augmented, when necessary, 
by inspections performed by structural, mechanical, and electrical 
representatives. Periodic inspections should be made as frequently as is 
necessary to verify that the work conforms with the intent of the 
contract documents and that a high quality of workmanship is maintained. 
The State Director may require a full-time project representative on 
projects with a total development cost of $750,000 or more, when in the 
opinion of the State Director there is a need for such representative, 
and the State Director states the reasons for such need to the borrower.
    (G) Determine, based on the inspections, the dates of substantial 
completion and final completion; receive on the borrower's behalf all 
written guarantees and related documents assembled by the contractor; 
and issue a final certificate for payment.
    (vi) Warranty phase. The architect will advise and consult with the 
borrower, as the borrower's representative, about items to be corrected 
within the warranty period. The architect will accompany the FmHA or its 
successor agency under Public Law 103-354 representative during the 
inspection required one month prior to expiration of the warranty 
period.
    (b) Other professional services. The State Director, on the 
recommendation of the State architect/engineer, may request that 
additional professional services be provided.
    (1) Professional services typically include soils engineering, 
structural engineering, civil engineering, surveying, land planning, or 
professional cost estimation or certification. Fees for these services 
may be paid directly by the borrower or by the architect as reimbursable 
expenses.
    (2) When a project representative is utilized, unless otherwise 
agreed, the representative will be provided by the consulting architect/
engineer. Prior to the preconstruction conference, the architect/
engineer will submit a resume of qualifications of the project 
representative to the applicant and to FmHA or its successor agency 
under Public Law 103-354 for acceptance in writing. If the applicant 
provided the project representative, the applicant must submit a resume 
of the representative's qualifications to the project architect/engineer 
and FmHA or its successor agency under Public Law 103-354 for acceptance 
in writing, prior to the preconstruction conference. The project 
representative will attend the

[[Page 108]]

preconstruction conference where duties and responsibilities will be 
fully discussed. The project representative will work under the general 
supervision of the architect/engineer. The project representative will 
maintain a daily diary in accordance with the following:
    (i) The diary shall be maintained in a hard-bound book.
    (ii) The diary shall have all pages numbered and all entries in ink.
    (iii) All entries shall be on daily basis, beginning with the date 
and weather conditions.
    (iv) Daily entries shall include daily work performed, number of men 
and equipment used in the performance of the work, and all significant 
happenings during the day.
    (v) The diary shall be made available to FmHA or its successor 
agency under Public Law 103-354 personnel and will be reviewed during 
project inspections.
    (vi) The project representative's diary will become the property of 
the owner after the project is accepted and final payments are made.
    (c) Drawings. The type and kinds of drawings should be in accordance 
with exhibit C of this subpart and subpart D of part 1944 of this 
chapter.
    (1) The drawings must be clear, accurate, with adequate dimensions 
and of sufficient scale for estimating purposes.
    (2) Construction sections and large-scale details sufficient for 
accurate bidding and for the purpose of correlating all parts of the 
work should be part of the general drawings. This is particularly 
important where the size of a project makes necessary the preparation of 
the general drawings at a scale of 1/8 inch equals 1 foot or less.
    (3) Mechanical and electrical work should be shown on separate 
plans.
    (4) Schedules should be provided for doors, windows, finishes, 
electrical fixtures, finish hardware, and any other specialty items 
necessary to clarify drawings.
    (d) Specifications. Trade-type specifications (specifications 
divided into sections for various trades) should be used. The 
specifications should be complete, clear, and concise, with adequate 
description of the various classes of work shown under the proper 
sections and headings.
    (e) Methods of administering construction. Projects involving a 
total development cost of less than $100,000 which do not include an LH 
grant may, with the approval of the State Director, follow the contract 
procedure in Sec.  1924.6(a) of this subpart without modification. 
Construction of all other projects, however, will be administered by the 
contract method or owner-builder method as set forth in this section.
    (1) Contract method. This method of development will be used for all 
complex construction except in cases where owner-builder method is 
authorized. Development under this method is done in accordance with 
Sec.  1924.6(a) of this subpart except as modified by this paragraph. 
All construction work will be completed under one written construction 
contract. Guide 1, ``Contract Documents,'' of this subpart (available in 
any FmHA or its successor agency under Public Law 103-354 office) is 
provided to assist FmHA or its successor agency under Public Law 103-354 
personnel and applicants in assembling and reviewing contract documents 
for more complex construction such as that administered under this 
section.
    (i) Competitive bidding methods. (A) All construction contracts must 
be awarded on the basis of competitive bidding unless an exception is 
granted in accordance with paragraph (e)(1)(vii) of this section thereby 
permitting contract negotiation. The applicant's architect should 
prepare the bidding documents. Public notice must be given inviting all 
interested bidders to submit a bid. Prospective bidders may be contacted 
asking for their bids; however, public notice is necessary so that all 
local contractors have the opportunity to submit bids.
    (B) A bid bond is required from each bidder in the amount of 5 
percent of the bid price as assurance that the bidder will, upon 
acceptance of the bid, execute the required contract documents within 
the time specified.
    (C) The construction contract will be awarded based on the contract 
cost, and all conditions listed in the ``Invitation to Bid.''
    (D) If advertising does not provide a satisfactory bid in the 
opinion of the

[[Page 109]]

applicant and FmHA or its successor agency under Public Law 103-354, the 
applicant shall reject all bids and will then be free to negotiate with 
bidders on anyone else to obtain a satisfactory contract. The following 
conditions must be met:
    (1) The State Director determines that the original competitive bid 
process was handled in a satisfactory manner and that there is no 
advantage to advertising for competitive bid again.
    (2) The requirements of paragraph (e)(1)(vii) of this section are 
met.
    (E) If there is no agreement by FmHA or its successor agency under 
Public Law 103-354 and the applicant as to the construction cost, the 
State Director will cease any further action on the preapplication and 
inform the applicant of the right to appeal in accordance with subpart B 
of part 1900 of this chapter.
    (ii) Contract documents. Contract documents will conform with 
recognized professional practices as prescribed in this paragraph. Such 
contract documents will contain substantially the following:

Item I Invitation for Bids (Form FmHA or its successor agency under 
Public Law 103-354 1924-5)
Item II Information for Bidders
Item III Bid
Item IV Bid Bond
Item V Agreement (Construction Contract)
Item VI Compliance Statement (Form FmHA or its successor agency under 
Public Law 103-354 400-6)
Item VII General Conditions
Item VIII Supplemental General Conditions
Item IX Payment Bond (exhibit F of this subpart)
Item X Performance Bond (exhibit G of this subpart)
Item XI Notice of Award
Item XII Notice of Proceed
Item XIII Drawings and Specifications
Item XIV Addenda
Item XV Contract Change Order (Form FmHA or its successor agency under 
Public Law 103-354 1924-7)
Item XVI Labor Standards Provisions [Where applicable]
Item XVII Monthly Employment Utilization Report (Form CC-257)
Item XVIII Partial Payment Estimate (Form FmHA or its successor agency 
under Public Law 103-354 1924-18)
Item XIX Builder's Warranty (Form FmHA or its successor agency under 
Public Law 103-354 1924-19)

    (A) Substitution of term ``architect'' for ``engineer'' may be 
necessary on some of the forms. Other modifications may be necessary in 
some cases to conform to the nature and extent of the project. All such 
contract documents and related items will be concurred with by the State 
Director, with the assistance of OGC prior to the release of invitations 
to bid.
    (B) Items listed as I through IV and item XI of paragraph (e)(1)(ii) 
of this section may be omitted when an exception to the competitive 
bidding requirement is granted in accordance with paragraph (e)(1)(vii) 
of this section, thereby permitting a negotiated contract.
    (C) All negotiated contracts shall include a provision to the effect 
that the borrower, USDA, the Comptroller General of the United States, 
or any of their duly authorized representatives, shall have access to 
any books, documents, papers, and records of the contractor which are 
directly pertinent to a specific Federal loan program for the purpose of 
making audit, examination, excerpts, and transcriptions.
    (D) A provision of liquidated damages will be included in all 
contracts. The liquidated damage amount must be reasonable and represent 
the best estimate possible of how much interest or other costs will 
accrue on the loan, and also represent any loss of rent or other income 
which would result from a delay in the completion of the project beyond 
the estimated completion date.
    (E) All contracts shall include a provision for compliance with the 
Copeland ``Anti-Kickback'' Act (18 U.S.C. 874) as supplemented in 
Department of Labor regulations (29 CFR part 3). This Act prohibits 
anyone from inducing any person in connection with the construction to 
give up any part of the compensation to which the person is otherwise 
entitled.
    (F) All contracts will contain a certification by the applicant 
indicating that there is not now nor will there be an identity of 
interest between the applicant and any of the following: Contractor, 
architect, engineer, attorney, subcontractors, material suppliers, 
equipment lessors, or any of their

[[Page 110]]

members, directors, officers, stockholders, partners, or beneficiaries 
unless specifically identified to FmHA or its successor agency under 
Public Law 103-354 in writing prior to the award of the contract. All 
contracts must also indicate that when any identity of interest exists 
or comes into being, the contractor agrees to have construction costs as 
reported to FmHA or its successor agency under Public Law 103-354 on 
Form 1924-13, ``Estimate and Certificate of Actual Cost,'' audited by a 
Certified Public Accountant (CPA) or Licensed Public Accountant (LPA) 
licensed prior to December 31, 1970, who will provide an opinion as to 
whether the Form FmHA or its successor agency under Public Law 103-354 
1924-13 presents fairly the costs of construction in conformity with 
eligible construction costs as prescribed in FmHA or its successor 
agency under Public Law 103-354 regulations.
    (G) All contracts on any form other than Form FmHA or its successor 
agency under Public Law 103-354 1924-6, must contain the language of 
clause (D) of Form FmHA or its successor agency under Public Law 103-354 
1924-6, which is available in all FmHA or its successor agency under 
Public Law 103-354 offices. The language of clause (D) of Form FmHA or 
its successor agency under Public Law 103-354 1924-6 sets forth the 
Notice of Requirement for Affirmative Action to Ensure Equal Employment 
Opportunity required by Executive Order 11246, the Equal Opportunity 
clause published at 41 CFR 60-1.4 (a) and (b), and the Standard Federal 
Equal Employment Opportunity Construction Contract Specifications 
required by Executive Order 11246. For contract forms other than Form 
FmHA or its successor agency under Public Law 103-354 1924-6, Form AD 
767, ``Equal Employment Opportunity Contract Compliance Notices,'' which 
can be obtained from the Finance Office, should be attached and made a 
part of the contract.
    (H) All contracts will contain a provision that they are not in full 
force and effect until concurred with by the State Director or the State 
Director's delegate, in writing. Therefore, before loan closing or 
before the start of construction, whichever occurs first, the State 
Director or the State Director's delegate will concur in the contract 
form, content, and execution if acceptable, by including the following 
paragraph at the end of the contract:

    The Farmers Home Administration or its successor agency under Public 
Law 103-354, as potential lender or insurer of funds to defray to costs 
of this contract, and without liability for any payments thereunder, 
hereby concurs in the form, content, and execution of this contract.

Date____________________________________________________________________
________________________________________________________________________

FmHA or its successor agency under Public Law 103-354 Official
________________________________________________________________________
Title

    (I) The requirements of Sec.  1924.6 (a)(11)(iv) of this subpart 
apply to all contracts or subcontracts in excess of $10,000.
    (iii) Surety. When multiple advances of loan or grant funds are 
utilized, surety that guarantees both payment and performance in the 
full amount of the contract will be provided in accordance with Sec.  
1924.6(a)(3)(ii) of this subpart. Exceptions to the surety requirements 
shall be governed by the following:
    (A) In accordance with the guidance and recommendations of OMB 
Circulars A-102 and A-110, exceptions to the surety requirements of 
Sec.  1924.6(a)(3)(ii) of this subpart will not be granted for nonprofit 
organization or public body applicants.
    (B) For loans or grants to applicants other than non-profit 
organizations or public bodies that are within the State Director's 
approval authority, the State Director may, upon request of the borrower 
or grantee, grant exceptions to the surety requirements in accordance 
with the provisions of Sec.  1924.6(a)(3)(iii) of this subpart. Before 
granting such an exception, however, the State Director should be 
provided the following information from the proposed contractor in order 
to fully evaluate the experience and capabilities of the contractor:
    (1) A resume indicating the contractor's history, ability and 
experience.
    (2) A current, dated and signed financial statement of the 
contractor's operations indicating the payment status

[[Page 111]]

of accounts and any contingent liabilities that may exist. FmHA or its 
successor agency under Public Law 103-354 personnel will be responsible 
for analyzing the financial statement as to the sufficiency of the 
contractor's financial capability to carry out construction. The 
financial strength must demonstrate the ability of the contractor to pay 
all bills prior to receiving periodic draws of funds from the lender.
    (3) A credit report (obtained at no expense to FmHA or its successor 
agency under Public Law 103-354) attesting to the contractor's credit 
standing.
    (4) A listing of trade references that could be contacted to 
substantiate the contractor's experience and good standing.
    (5) Statements from owners for whom the contractor has done similar 
work, indicating the scope of the work and the owner's evaluation of the 
contractor's performance.
    (C) For loans or grants to applicants other than non-profit 
organization or public bodies that are in excess of the State Director's 
approval authority, the State Director may request National Office 
authorization to grant one of the exceptions to the surety requirements 
as indicated in Sec.  1924.6(a)(3)(iii) of this subpart. The following 
information must be submitted with the request to the National Office:
    (1) An explanation of why interim financing is not available.
    (2) An explanation of why the proposed contractor cannot obtain 
surety bonds meeting the requirements of Sec.  1924.6(a)(3)(ii) of this 
subpart.
    (3) The information listed in paragraph (e)(1)(iii)(B) of this 
section.
    (4) The drawings and specifications for the proposed project, 
together with the comments of the State architect/engineer.
    (5) The applicant's written request for an exception.
    (6) An explanation of why the requirements of Sec.  
1924.6(a)(3)(iii) (A) or (B) of this subpart cannot be met in those 
cases where the State Director requests authorization to grant an 
exception as indicated in Sec.  1924.6(a)(3)(iii)(C) of this subpart. 
When such a request is made, the documentation required of the 
contractor under the provision must also be forwarded.
    (7) The State Director's recommendation.
    (D) Adequate steps will be taken to protect the interests of the 
borrower and the government in accordance with the payment provisions of 
Sec.  1924.6(a)(12)(i) of this subpart and any alternative as outlined 
in Sec.  1924.6(a)(3)(iii)(c) of this subpart.
    (iv) Contract cost breakdown. In any case where the loan approval 
official feels it appropriate, and prior to the award or approval of any 
contract in which there is an identity of interest as defined in Sec.  
1924.4 (i) of this subpart, the contractor and any subcontractor, 
material supplier or equipment lessor sharing an identity of interest 
must provide the applicant and FmHA or its successor agency under Public 
Law 103-354 with a trade-item cost breakdown of the proposed contract 
amount for evaluation. The cost of any surety as required by Sec.  
1944.222 (h) and (i) of subpart E of part 1944 of this chapter and Sec.  
1924.6(a)(3) of this subpart, or cost certification as required by 
paragraph (e)(1)(v) of this section, will be included in the proposed 
contract amount and shown under General Requirements on Form FmHA or its 
successor agency under Public Law 103-354 1924-13, which is available in 
all FmHA or its successor agency under Public Law 103-354 offices. FmHA 
or its successor agency under Public Law 103-354 personnel will be 
responsible for reviewing the estimates on Form FmHA or its successor 
agency under Public Law 103-354 1924-13 to determine if the dollar 
amounts total correctly, to assure that costs are categorized under 
their appropriate columns, and to confirm that the estimated costs for 
all line items are reasonable and customary for the State.
    (v) Cost certification. Whenever the State Director determines it 
appropriate, and in all situations where there is an identity of 
interest as defined in Sec.  1924.4(i) of this subpart, the borrower, 
contractor and any subcontractor, material supplier, or equipment lessor 
having an identity of interest must each provide certification using 
Form FmHA or its successor agency under Public Law 103-354 1924-13

[[Page 112]]

as to the actual cost of the work performed in connection with the 
construction contract. The construction costs, as reported on Form FmHA 
or its successor agency under Public Law 103-354 1924-13, must also be 
audited, in accordance with Government Auditing Standards, by a CPA, or 
LPA licensed on or before December 31, 1970. In addition, certain agreed 
upon procedures (available in any FmHA or its successor agency under 
Public Law 103-354 office) will be performed in accordance with 
Attestation Standards. In some cases, FmHA or its successor agency under 
Public Law 103-354 will contract directly with a CPA or LPA for the cost 
certification. In that event, documentation necessary to have the costs 
of construction certified by an FmHA or its successor agency under 
Public Law 103-354 contractor that they were the actual costs of the 
work performed, as reported on Form FmHA or its successor agency under 
Public Law 103-354 1924-13, will be provided. Funds which were included 
in the loan for cost certification and which are ultimately not needed 
because FmHA or its successor agency under Public Law 103-354 contracts 
for the cost certification will be returned on the loan. FmHA or its 
successor agency under Public Law 103-354 personnel will utilize exhibit 
M of this subpart (available in any FmHA or its successor agency under 
Public Law 103-354 office) and Form FmHA or its successor agency under 
Public Law 103-354 1924-26, ``Cost Certification Worksheet,'' to assist 
in the evaluation of the cost certification process.
    (A) Prior to the start of construction, the borrower, contractor and 
any subcontractor, material supplier, or equipment lessor sharing an 
identity of interest must submit, to the CPA or LPA, the accounting 
system that the borrower, contractor, subcontractor, material supplier 
or equipment lessor and/or the CPA or LPA proposes to set up and use in 
maintaining a running record of the actual cost. In order to be 
acceptable, the borrower must provide a written assertion that it has an 
accounting system that is suitably designed to provide for a trade-item 
basis comparison of the actual cost as compared to the estimated cost 
submitted on Form FmHA or its successor agency under Public Law 103-354 
1924-13. Costs pertaining to a specific line item will be set up in the 
accounting system for that particular account. For instance, only costs 
of materials, supplies, equipment, and labor associated with concrete 
will be shown in the concrete account. The accounting system must also 
restrict costs to those pertaining to a specific project so that costs 
from multiple projects will not be co-mingled. The independent CPA or 
LPA shall report on the borrower's assertion in accordance with the 
Standards for Attestation Engagements of the American Institute of 
Certified Public Accountants (AICPA). The borrower's and the CPA or 
LPA's reports on the accounting system shall be provided to FmHA or its 
successor agency under Public Law 103-354 by the borrower.
    (B) Prior to final payment to anyone required to cost certify, a 
trade-item breakdown showing the actual cost compared to the estimated 
cost must be provided to the owner and FmHA or its successor agency 
under Public Law 103-354. Form FmHA or its successor agency under Public 
Law 103-354 1924-13 is the form of comparative breakdown that must be 
used, and contains the certifications required of the applicant and 
contractor prior to final payment. The amounts for builder's general 
overhead, builder's profit, and general requirements, respectively, 
shall not exceed the amounts represented on the estimate of cost 
breakdown provided in accordance with paragraph (e)(1)(iv) of this 
section for any contractor, subcontractor, material supplier, or 
equipment lessor having or sharing an identity of interest with the 
borrower. The amounts for general overhead, builder's profit, and 
general requirements must be established prior to FmHA or its successor 
agency under Public Law 103-354 approving the construction contract and 
will not be changed during the course of construction. This applies to 
all contractors, subcontractors, material suppliers, or equipment 
lessors having or sharing an identity of interest with the applicant. 
Contract change orders will be processed to adjust the contract amount 
downward prior to the final payment to the contractor, if necessary, to 
assure that the

[[Page 113]]

amounts shown in the certificate of actual costs do not exceed the 
amounts represented in the contract cost breakdown. Reduction in the 
builder's profit, and general overhead if needed, will counterbalance 
any increase reflected in the contract costs. Any funds remaining as a 
result of hard cost savings will be applied to the account as an extra 
payment or used for eligible loan purposes approved by FmHA or its 
successor agency under Public Law 103-354 as long as the improvements 
are genuinely needed and will enhance marketability of the project. All 
increases or decreases of 15 percent or more in line item costs will 
require documentation as to the reason for the increases and/or 
decreases. The State Director may require documentation for increases 
and/or decreases of less than 15 percent, if he/she determines it 
necessary. This information will be required with the cost 
certification.
    (C) The CPA or LPA audit, performed in accordance with Government 
Auditing Standards, will include such tests of the accounting records 
and such other auditing procedures of the borrower and the contractor 
(and any subcontractor, material supplier or equipment lessor sharing an 
identity of interest) concerning the work performed, services rendered, 
and materials supplied in accordance with the construction contract he/
she considers necessary to express an opinion on the construction costs 
as reported on Form FmHA or its successor agency under Public Law 103-
354 1924-13. The CPA or LPA shall also perform the additional agreed 
upon procedures specified by FmHA or its successor agency under Public 
Law 103-354 (available in any FmHA or its successor agency under Public 
Law 103-354 office), performed in accordance with Attestation Standards, 
for the applicant and the contractor (and any subcontractor, material 
supplier, or equipment lessor sharing an identity of interest) 
concerning the work performed, services rendered, and materials supplied 
in accordance with the construction contract.
    (D) Upon completion of construction and prior to final payment, the 
CPA or LPA will provide an opinion concerning whether the construction 
costs, as reported on Form FmHA or its successor agency under Public Law 
103-354 1924-13, present fairly the costs of construction in conformity 
with eligible construction costs as prescribed in FmHA or its successor 
agency under Public Law 103-354 regulations.
    (E) In some cases, cost certification will be obtained by FmHA or 
its successor agency under Public Law 103-354 through direct contract 
with the CPA or LPA. The borrower and his/her CPA or LPA will cooperate 
fully with the contract CPA or LPA by providing all documentation 
necessary to conduct the certification. FmHA or its successor agency 
under Public Law 103-354 reserves the right to determine, upon receipt 
of the certified Form FmHA or its successor agency under Public Law 103-
354 1924-13 and the auditor's report, whether they are satisfactory to 
FmHA or its successor agency under Public Law 103-354. If not 
satisfactory to FmHA or its successor agency under Public Law 103-354, 
the borrower will be responsible for providing additional information.
    (F) There will exist no business relationship between the CPA or LPA 
and the borrower except for the performance of the examination of the 
cost certification, accounting systems work, and tax preparation. Any 
CPA or LPA who acts as the borrower's accountant (performing manual or 
automated bookkeeping services or maintains the official accounting 
records) will not be the same CPA or LPA who cost certifies the project.
    (G) Forms FmHA or its successor agency under Public Law 103-354 
1944-30, ``Identity of Interest (IOI) Disclosure Certificate'' and FmHA 
or its successor agency under Public Law 103-354 1944-31, ``Identity of 
Interest (IOI) Qualification Form,'' provide written notification to the 
borrower that willful and intentional falsification of cost 
certification documents will result in debarment of all violators in 
accordance with the provisions of FmHA or its successor agency under 
Public Law 103-354 Instruction 1940-M (available in any FmHA or its 
successor agency under Public Law 103-354 office). These forms require 
the disclosure of all identities of interest associated with project 
construction, certify the entity's ability to provide the contracted

[[Page 114]]

service, and cite the penalties for failure to disclose or falsify such 
certification. Each applicant/borrower will be required to complete and 
sign the forms (available in any FmHA or its successor agency under 
Public Law 103-354 office).
    (H) Subcontracting development work.
    (1) Contractors will not be allowed to obtain a profit and overhead 
unless they are performing actual construction. ``Actual construction'' 
means ``work'' as defined in American Institute of Architects (AIA) 
documents: ``* * * labor, materials, equipment, and services provided by 
the contractor to fulfill the contractor's obligations.'' Under this 
definition, contractors who choose to subcontract out construction of 
the project to another contractor will not obtain a builder's fee 
(general overhead and profit) when:
    (i) More than 50 percent of the contract sum in the construction 
contract is subcontracted to one subcontractor, material supplier, or 
equipment lessor, and/or
    (ii) Seventy-five percent or more with three or fewer 
subcontractors, material suppliers and/or equipment lessors.
    (2) Note: If two or more subcontractors have common ownership, they 
are considered as one subcontractor.
    (3) How to apply rule:
    (i) The 50 percent rule will apply when division of the amount of 
the largest subcontract by the contract sum of the construction contract 
results in more than 50 percent.
    (ii) The 75 percent rule will apply when division of the sum of the 
amounts of the three largest subcontracts by the contract sum of the 
construction contract results in 75 percent or more.
    (I) Qualified contracting entities. Contractors, subcontractors, 
material suppliers, and any other individual or organization sharing an 
identity of interest and providing materials or services for the project 
must certify that it is a viable, ongoing trade or business qualified 
and properly licensed to undertake the work for which it intends to 
contract. Form FmHA or its successor agency under Public Law 103-354 
1944-31 will be prepared and executed by the contracting entities. The 
form provides notification to the entities of the penalty, under law, 
for erroneously certifying to the statements contained therein. 
Debarment actions will be instituted against entities who fail to 
disclose an identity of interest in accordance with the provisions of 
FmHA or its successor agency under Public Law 103-354 Instruction 1940-M 
(available in any FmHA or its successor agency under Public Law 103-354 
office).
    (vi) Method of payments. Partial payments may be requested in 
accordance with the terms of the construction contract on Form FmHA or 
its successor agency under Public Law 103-354 1924-18, ``Partial Payment 
Estimate,'' or other professionally recognized form that contains the 
architect's certification, approval of the owner, and conditional 
acceptance of FmHA or its successor agency under Public Law 103-354 as 
shown in Form FmHA or its successor agency under Public Law 103-354 
1924-18.
    (A) If interim financing is available at reasonable rates and terms 
for the construction period, such financing shall be obtained. exhibit B 
of subpart E of part 1944 of this chapter shall be used to inform the 
interim lender that FmHA or its successor agency under Public Law 103-
354 will not close its loan until the project is substantially complete, 
ready for occupancy, evidence is furnished indicating that all bills 
have been paid or will be paid at loan closing for work completed on the 
project, all inspections have been completed and all required approvals 
have been obtained from municipal and governmental authorities having 
jurisdiction over the project.

Upon presentation of proper partial payment estimates approved by the 
applicant and accepted by FmHA or its successor agency under Public Law 
103-354, the interim lender may advance construction funds in accordance 
with the payment terms of the contract. It is suggested that partial 
payments not exceed 90 percent of the value of work in place and 
materials suitably stored on site.
    (B) When interim financing is not available, payments will be made 
in accordance with Sec.  1924.6(a)(12) of this subpart.

[[Page 115]]

    (vii) Exception to competitive bidding--(A) For all applicants. An 
applicant may negotiate a construction contract provided the State 
Director grants an exception and documentation shows that:
    (1) The contract price is competitive with other projects similar in 
construction and design being built in the area.
    (2) The proposed contractor is experienced in construction of 
projects of similar size, scope, and complexity, and is recognized as a 
reliable builder.
    (3) The proposed development work meets all requirements of this 
subpart.
    (4) If appropriate for nonprofit organizations and public bodies, 
the applicant provides a copy of a duly authorized resolution by its 
governing body requesting FmHA or its successor agency under Public Law 
103-354 to permit awarding the construction contract without formal 
bidding.
    (5) The applicant is permitted by state law, local law and/or 
organizational by-laws to negotiate a construction contract.
    (6) The requirements of paragraphs (e)(1) (ii), (iii), (iv) and (v) 
of this section are met.
    (B) In considering an exception to competitive bidding, the 
following additional steps will be taken in all cases.
    (1) If, after a full review of the case documents by the appropriate 
members of the State Office staff, the State Director determines that 
the requirements have been met and the costs are reasonable, an 
exception to competitive bidding may be granted. Written documentation 
of the State Office review results will be placed in the application 
file.
    (2) If after the full review by the State Office staff, the State 
Director determines that the negotiated contract price is not 
competitive with other similar projects in construction and design being 
built in the area, the applicant will be requested to competitively bid 
the construction of the project in accordance with paragraph (e)(1)(i) 
of this section.
    (3) If there is no agreement by FmHA or its successor agency under 
Public Law 103-354 and the applicant as to the construction cost, the 
State Director will cease any further action on the preapplication and 
inform the applicant of the right to appeal in accordance with subpart B 
of part 1900 of this chapter.
    (C) Any requests for exceptions to competitive bidding that are not 
covered in this section may be submitted to the National Office for 
consideration.
    (viii) Exception to contract method--public body. With the approval 
of the National Office, the State Director may grant to a public body an 
exception to the requirement for using contract method construction 
under the following circumstances:
    (A) The loan or grant is for repair or rehabilitation of existing 
facilities and it is not practicable to perform all work by the contract 
method.
    (B) The applicant has the managerial ability and qualified employees 
necessary to complete the work successfully.
    (C) That applicant submits a written request to the District 
Director indicating:
    (1) The scope of work and construction timetable;
    (2) What phases of work can be contracted and what cannot;
    (3) Why is it not practicable to contract all phases;
    (4) Management ability and employee qualifications for performing 
the work;
    (5) Proposed method of fund control and frequency of payments;
    (6) How changes in scope of work and construction timetable will be 
approved; and,
    (7) Proposed method of certifying progress and requesting payments.
    (D) The request, recommendations of the District Director, 
appropriate members of the State Office staff and the State Director and 
the application file will be sent to the National Office.
    (2) Owner-builder method. This method of development is used only 
when requested by profit or limited profit RRH applicants when the 
applicant or any of its controlling principals (such as stockholders, 
members, partners other than limited partners, directors, or officers), 
are general contractors by profession, and will serve as the builder of 
the project without a written construction contract. The State Director 
may make an exception to the contract method of construction and 
authorize

[[Page 116]]

proceeding by the owner-builder method of construction in accordance 
with the provisions of this section if the amount of the loan(s) does 
not exceed the State Director's approval authority. For projects over 
the State Director's authority, prior written consent of the National 
Office is required. In such cases, the drawings, specifications, cost 
estimates, copy of the State Architect/Engineer's review and detailed 
information on the applicant's qualifications will be submitted to the 
National Office along with the State Director's recommendations.
    (i) The applicant's request to construct a project by the owner-
builder method of construction shall be in the form of a letter giving 
specific and detailed information concerning the owner-builder's 
proposal, and the qualifications and past experience of the owner-
builder. The following information must be included with the request:
    (A) A resume indicating the owner-builder's history, ability, and 
experience.
    (B) Dated and signed financial statements on the owner-builder's 
operation (including balance sheets and statements of income and 
expense) from current and prior years indicating the payment status of 
the owner-builder's accounts and any contingent liabilities that may 
exist. FmHA or its successor agency under Public Law 103-354 personnel 
will be responsible for analyzing the financial statement as to the 
sufficiency of the owner-builder's financial capability to carry out 
construction. The financial strength must demonstrate the ability of the 
owner-builder to pay all bills prior to receiving periodic draws of 
funds from the lender.
    (C) A written, dated, and signed statement agreement to provide any 
funds necessary in excess of the applicant's contribution and the loan 
amount to complete the project.
    (D) A credit report (obtained at no expense to FmHA or its successor 
agency under Public Law 103-354) attesting to the owner-builder's credit 
standing.
    (E) A listing of trade references that could be contacted to 
substantiate the owner-builder's experience and good standing.
    (F) Statements from other persons for whom the owner-builder has 
done similar work, indicating the scope of the work and that person's 
evaluation of the owner-builder's performance.
    (G) A current, dated, and signed trade-item cost breakdown of the 
estimated total development cost of the project which has been prepared 
by the applicant/owner-builder. Form FmHA or its successor agency under 
Public Law 103-354 1924-13 will be used for this purpose. If cost 
certification services are required by FmHA or its successor agency 
under Public Law 103-354, the cost of such services may be included in 
the total development cost of the project. Any subcontractor, material 
supplier, or equipment lessor sharing an identity of interest with the 
applicant/owner-builder as defined in Sec.  1924.4(i) of this subpart 
must also provide a trade-item cost breakdown of the proposed amount.
    (H) Prior to the start of construction, the owner-builder and any 
subcontractor, material supplier, or equipment lessor sharing an 
identity of interest must submit, to the CPA or LPA, the accounting 
system that the owner-builder, subcontractor, material supplier or 
equipment lessor and/or the CPA or LPA proposes to set up and use in 
maintaining a running record of the actual cost. In order to be 
acceptable, the owner-builder must provide a written assertion that it 
has an accounting system that is suitably designed to provide for a 
trade-item basis comparison of the actual cost as compared to the 
estimated cost submitted on Form FmHA or its successor agency under 
Public Law 103-354 1924-13. Costs pertaining to a specific line item 
will be set up in the accounting system for that particular account. For 
instance, only costs of materials, supplies, equipment, and labor 
associated with concrete will be shown in the concrete account. The 
accounting system must also restrict costs to those pertaining to a 
specific project so that costs from multiple projects will not be co-
mingled. The independent CPA or LPA shall report on the owner-builder's 
assertion in accordance with the Standards for Attestation Engagements 
of the AICPA. The owner-builder's and

[[Page 117]]

the CPA or LPA's reports on the accounting system shall be provided to 
FmHA or its successor agency under Public Law 103-354 by the owner-
builder.
    (I) A written, dated, and signed statement agreeing to permit U.S. 
Department of Agriculture, the Comptroller General of the United States, 
or any of their duly authorized representatives, to have access to any 
books, documents, papers, and records which are directly pertinent to 
the specific Federal program for the purpose of making audit, 
examination, excerpts and transcriptions.
    (ii) In order to grant an exception to the contract method of 
construction and proceed with the owner-builder method of construction, 
the State Director must determine that the following conditions exist:
    (A) The applicant or at least one of its principals is a fully 
qualified and licensed (if necessary under applicable local law) builder 
by profession, has adequate experience in constructing the type of units 
proposed as well as projects of similar size, scope, and complexity and 
will be able to complete the work in accordance with the FmHA or its 
successor agency under Public Law 103-354 approved drawings and 
specifications.
    (B) Based upon the information presented in the applicant's 
financial statements, the applicant is presently able and is likely to 
continue to be able to provide any funds necessary in excess of the 
applicant's contribution and the loan amount to complete the project.
    (C) The total development cost of the project does not exceed that 
which is typical for similar type projects in the area. The total 
development cost recognized by FmHA or its successor agency under Public 
Law 103-354 for each individual case will be determined by the MFH 
Coordinator with the advice of the State Architect.
    (D) The owner-builder has provided sufficient information on all 
contracts or subcontracts in excess of $10,000 to permit compliance with 
Sec.  1924.6(a)(11)(iv) of this subpart.
    (iii) In addition to the requirements for the State Director to 
authorize the owner-builder method of construction as indicated in Sec.  
1924.13(e)(2) (i) and (ii) of this subpart, the following additional 
steps will be taken by the State Director.
    (A) If, after a full review of the case documents by the appropriate 
members of the State Office staff, the State Director determines that 
the requirements have been met and the construction cost is reasonable, 
an exception to competitive bidding may be granted. Written 
documentation of the State Office review results will be placed in the 
application file.
    (B) If, after the full review by the State Office staff, the State 
Director determines that the construction cost is not competitive with 
other similar projects in construction and design being built in the 
area, the applicant will be requested to competitively bid the 
construction of the project in accordance with paragraph (e)(1)(i) of 
this section.
    (C) If there is no agreement by FmHA or its successor agency under 
Public Law 103-354 and the applicant as to construction cost and the 
applicant is not agreeable to any of the aforementioned alternatives, 
the State Director will cease any further action on the preapplication 
and inform the applicant of the right to appeal, in accordance with 
subpart B of part 1900 of this chapter.
    (iv) The development cost of the project may include a typical 
allowance for general overhead, general requirements and a builder's 
profit. These amounts may be determined by local investigation and also 
from HUD data for the area. The applicant/owner-builder and any 
subcontractors, material suppliers and equipment lessors having or 
sharing an identity of interest with the applicant/owner-builder may not 
be permitted a builder's profit, general overhead, and general 
requirements which exceed the amounts represented on their cost 
breakdown.
    (v) Under no circumstances will loan funds be used to pay the owner/
builder or its stockholders, members, directors or officers, directly or 
indirectly, any profits from the construction of the project except a 
typical builder's fee for performing the services that would normally be 
performed by a general contractor under the contract method

[[Page 118]]

of construction. Discounts and rebates given the owner-builder in 
advance must be deducted before the invoices are paid. If discounts or 
rebates are given after the invoices are paid, the funds must be 
returned to the supervised bank account or applied on the interim 
construction loan, as appropriate. Under no circumstances will the 
dollar amount be placed in the reserve account.
    (vi) The plan and specifications must be specific and complete so 
that there is a clear understanding as to how the facility will be 
constructed and the materials that will be used.
    (vii) When architectural services are required by Sec.  1924.13(a) 
during the construction and warranty phases they must be provided by an 
architect who has no identity of interest with the applicant/owner-
builder. The services to be rendered during the construction and 
warranty phases include, but are not limited to inspections, changes in 
the scope of project or work to be done, administration of construction 
accounts, rejection of work and materials not conforming to the FmHA or 
its successor agency under Public Law 103-354 approved drawings and 
specifications, and other appropriate service listed in Sec.  
1924.13(a)(5) (v) and (vi) of this subpart.
    (viii) The applicant/owner-builder and any subcontractor, material 
supplier, or equipment lessor sharing an identity of interest as defined 
in Sec.  1924.4(i) of this subpart must each provide certification as to 
the actual cost of the work performed in connection with the 
construction of the project on Form FmHA or its successor agency under 
Public Law 103-354 1924-13 prior to final payment. The construction 
costs, as reported on Form FmHA or its successor agency under Public Law 
103-354 1924-13, must be audited by a CPA, or LPA licensed on or before 
December 31, 1970, in accordance with Government Auditing Standards, and 
certain agreed upon procedures (available in any FmHA or its successor 
agency under Public Law 103-354 office) performed in accordance with 
Attestation Standards. In some cases, FmHA or its successor agency under 
Public Law 103-354 will contract directly with a CPA or LPA for the cost 
certification. In that event, documentation necessary to have the costs 
of construction certified by an FmHA or its successor agency under 
Public Law 103-354 contractor that they were the actual costs of the 
work performed, as reported on Form FmHA or its successor agency under 
Public Law 103-354 1924-13, will be provided. Funds which were included 
in the loan for cost certification and which are ultimately not needed 
because FmHA or its successor agency under Public Law 103-354 contracts 
for the cost certification will be returned on the loan.
    (A) The CPA or LPA's audit, performed in accordance with Government 
Auditing Standards, will include such tests of the accounting records 
and such other auditing procedures of the applicant/owner-builder (and 
any subcontractor, material supplier, or equipment lessor sharing an 
identity of interest) concerning the work performed, services rendered, 
and materials supplied in connection with the construction of the 
project he/she considers necessary to express an opinion on the 
construction costs as reported on Form FmHA or its successor agency 
under Public Law 103-354 1924-13. Upon completion of construction and 
prior to final payment, the CPA or LPA will provide an opinion as to 
whether the construction costs as reported on Form FmHA or its successor 
agency under Public Law 103-354 1924-13 present fairly the costs of 
construction in conformity with eligible construction costs as 
prescribed in FmHA or its successor agency under Public Law 103-354 
regulations. FmHA or its successor agency under Public Law 103-354 
reserves the right to determine, upon receipt of the certified Form FmHA 
or its successor agency under Public Law 103-354 1924-13 and the 
auditor's report, whether they are satisfactory to FmHA or its successor 
agency under Public Law 103-354. At a minimum, the CPA or LPA shall also 
perform any additional agreed upon procedures (available in any FmHA or 
its successor agency under Public Law 103-354 office) specified by FmHA 
or its successor agency under Public Law 103-354, performed in 
accordance with Attestation Standards, of the owner-builder (and any 
subcontractor, material supplier, or

[[Page 119]]

equipment lessor sharing an identity of interest) concerning the work 
performed, services rendered, and materials supplied in connection with 
the construction. There will exist no business relationship between the 
CPA or LPA and the borrower except for the performance of the 
examination of the cost certification, accounting systems work, and tax 
preparation. Any CPA or LPA who acts as the borrower's accountant 
(performing manual or automated bookkeeping services or maintains the 
official accounting records) will not be the same CPA or LPA who cost 
certifies the project.
    (B) Prior to final payment to anyone required to cost certify, FmHA 
or its successor agency under Public Law 103-354 must be provided with a 
certification and a trade-item breakdown showing the actual cost 
compared to the estimated cost furnished in accordance with paragraph 
(e)(2)(i)(G) of this section. Form FmHA or its successor agency under 
Public Law 103-354 1924-13 is the form of comparative breakdown that 
must be used, and contains the certification required of the applicant/
owner-builder prior to final payment. The amounts for builder's general 
overhead, general requirements, and builder's profit shall not exceed 
the amounts represented on the estimate of cost breakdown provided in 
accordance with paragraph (e)(2)(i)(G) of this section for the owner-
builder or any subcontractor, material supplier, or equipment lessor 
having or sharing an identity of interest with the applicant/owner-
builder. Final payment to the owner-builder will be adjusted, if 
necessary, to assure that the amounts shown on the certificate of actual 
cost do not exceed the amounts represented on the cost breakdown. Any 
funds remaining as a result of hard cost savings will be applied to the 
account as an extra payment or used for eligible loan purposes approved 
by FmHA or its successor agency under Public Law 103-354 as long as the 
improvements are genuinely needed and will enhance marketability of the 
project. All increases or decreases of 15 percent or more in line item 
costs will require documentation as to the reason for the increases or 
decreases. The State Director may require documentation for increases or 
decreases of less than 15 percent, if he/she determines it necessary. 
This information will be required with the cost certification.
    (C) Subcontracting development work.
    (1) Owner-builders will not be allowed to obtain a profit and 
overhead unless they are performing actual construction. ``Actual 
construction'' means ``work'' as defined in AIA documents: ``* * * 
labor, materials, equipment, and services provided by the contractor to 
fulfill the contractor's obligations.'' Under this definition, owner-
builders who choose to subcontract out construction of the project to 
another contractor will not obtain a builder's fee (general overhead and 
profit) when:
    (i) More than 50 percent of the total cost of the building 
construction is subcontracted to one subcontractor, material supplier, 
or equipment lessor, and/or
    (ii) Seventy-five percent or more with three or fewer 
subcontractors, material suppliers, and/or equipment lessors.
    (2) Note: If two or more subcontractors have common ownership, they 
are considered as one subcontractor.
    (3) How to apply rule:
    (i) The 50 percent rule will apply when division of the amount of 
the largest subcontract by the total amount of the building cost results 
in more than 50 percent.
    (ii) The 75 percent rule will apply when division of the sum of the 
amounts of the three largest subcontracts by the total building cost 
results in 75 percent or more.
    (D) Qualified contracting entities. Contractors, subcontractors, 
material suppliers, and any other individual or organization sharing an 
identity of interest and providing materials or services for the project 
must certify that it is a viable, ongoing trade or business qualified 
and properly licensed to undertake the work for which it intends to 
contract. Form FmHA or its successor agency under Public Law 103-354 
1944-31 will be prepared and executed by the contracting entities. The 
form provides notification to the entities of the penalty, under law, 
for erroneously certifying to the statements contained therein. 
Debarment actions will be instituted against entities who fail to

[[Page 120]]

disclose an identity of interest in accordance with the provisions of 
FmHA or its successor agency under Public Law 103-354 Instruction 1940-M 
(available in any FmHA or its successor agency under Public Law 103-354 
office).
    (ix) Requests for payment for work performed by the owner-builder 
method, shall be permitted to the FmHA or its successor agency under 
Public Law 103-354 District Director for review and approval prior to 
each advance of funds in order to insure that funds are used for 
authorized purposes. Requests for payment shall be made on Form FmHA or 
its successor agency under Public Law 103-354 1924-18 or other 
professionally recognized form containing the following certification to 
FmHA or its successor agency under Public Law 103-354:

    The undersigned certifies that the work has been carefully inspected 
and to the best of their knowledge and belief, the quantities shown in 
this estimate are correct and the work has been performed in accordance 
with the contract documents.
________________________________________________________________________
(Name of Architect)

By:_____________________________________________________________________

________________________________________________________________________
    (Title (Date)

Approved by Owner's Representative: By:_________________________________

________________________________________________________________________
    (Title)

Accepted by FmHA or its successor agency under Public Law 103-354 
Representative: By:_____________________________________________________
________________________________________________________________________
    (Title)

    The review and acceptance of partial payment estimates by FmHA or 
its successor agency under Public Law 103-354 does not attest to the 
correctness of the quantities shown or that the work has been performed 
in accordance with the plans and specifications.

    (A) If interim financing is available at reasonable rates and terms 
for the construction period, such financing shall be obtained. Exhibit B 
of subpart E of part 1944 of this chapter shall be used to inform the 
interim lender that FmHA or its successor agency under Public Law 103-
354 will not close its loan until the project is complete, ready for 
occupancy, evidence is furnished indicating that all bills have been 
paid for work completed on the project, all inspections have been 
completed and all required approvals have been obtained from any 
governmental authorities having jurisdiction over the project. Upon 
presentation of proper partial payment estimates containing an estimate 
of the value of work in place which has been prepared and executed by 
the owner-builder, certified by the applicant's architect, and accepted 
by FmHA or its successor agency under Public Law 103-354, the interim 
lender may advance construction funds in accordance with the provisions 
of this section. It is suggested that the partial payment not exceed 90 
percent of the value of work in place and material suitably stored on 
site.
    (B) If interim financing is not available, partial payments not to 
exceed 90 percent of the value of work in place and materials suitably 
stored on site may be made to the owner-builder for that portion of the 
estimated cost of development guaranteed by a letter of credit or 
deposits meeting the requirements of Sec.  1924.6(a)(3)(iii) (A), (B) or 
(C) of this subpart. Partial payments may not exceed 60 percent of the 
value of work in place in all other cases. The determination of the 
value of work in place will be based upon an application for payment 
containing an estimate of the value of work in place which has been 
prepared and executed by the owner-builder, certified by the borrower's 
architect, and accepted by FmHA or its successor agency under Public Law 
103-354. Prior to receiving the first partial payment, the owner-builder 
must submit a schedule of prices or values of the various trades or 
phases of the work aggregating the total development cost of the project 
as required in Sec.  1924.13(e)(2)(i) (G) and (H) of this subpart. Each 
application for payment must be based upon this schedule, and show the 
total amount owed and paid to date for materials and labor procured in 
connection with the project. With each application for payment, the 
owner-builder must also submit evidence showing how the requested 
partial payment is to be applied, evidence showing that previous partial 
payments were properly applied, and a signed statement from the 
applicant's attorney, title insurance company, or local official in 
charge of

[[Page 121]]

recording documents certifying that the public records have been 
searched and that there are no liens of record. When the District 
Director has reason to believe that partial payments may not be applied 
properly, checks will be made payable to persons who furnish materials 
and labor for eligible purposes in connection with the project.
    (x) Under no circumstances shall funds be released for final payment 
or to pay any items of the builder's profit until the project is 100 
percent complete, ready for occupancy, and the owner-builder has 
completed and properly executed Form FmHA or its successor agency under 
Public Law 103-354 1924-13 or complied with the cost certification 
procedures of Sec.  1924.13(e)(2)(viii) of this subpart.

[52 FR 8002, Mar. 13, 1987; 52 FR 26139, July 13, 1987, as amended at 53 
FR 2155, Jan. 26, 1988; 59 FR 6882, Feb. 14, 1994; 61 FR 56116, Oct. 31, 
1996]



Sec. Sec.  1924.14-1924.48  [Reserved]



Sec.  1924.49  State supplements.

    State Supplements or policies will not be issued or adopted to 
either supplement or set requirements different from those of this 
subpart, unless specifically authorized in this subpart, without prior 
written approval of the National Office.



Sec.  1924.50  OMB control number.

    The reporting and recordkeeping requirements contained in this 
regulation have been approved by the Office of Management and Budget 
(OMB) and have been assigned OMB control number 0575-0042. Public 
reporting burden for this collection of information is estimated to vary 
from 5 minutes to 4 hours per response, with an average of 37 minutes 
per response, including time for reviewing instructions, searching 
existing data sources, gathering and maintaining the data needed, and 
completing and reviewing the collection of information. Send comments 
regarding this burden estimate or any other aspect of this collection of 
information, including suggestions for reducing this burden, to U.S. 
Department of Agriculture, Clearance Officer, OIRM, AG Box 7630, 
Washington, DC 20250; and to the Office of Management and Budget, 
Paperwork Reduction Project (OMB 0575-0042), Washington, DC 
20503.

[59 FR 6885, Feb. 14, 1994]

  Exhibit A to Subpart A of Part 1924--Estimated Breakdown of Dwelling 
                  Costs for Estimating Partial Payments

                              [In percent]
------------------------------------------------------------------------
                                              With      With
                                             slab on    crawl     With
                                              grade     space   basement
------------------------------------------------------------------------
1. Excavation.............................         3         5         6
2. Footings, foundations columns..........         8         8        11
3. Floor slab or framing..................         6         4         4
4. Subflooring............................         0         1         1
5. Wall framing, sheathing................         7         7         6
6. Roof and ceiling framing, sheathing....         6         6         5
7. Roofing................................         5         5         4
8. Siding, exterior trim, porches.........         7         7         6
9. Windows and exterior doors.............         9         9         8
10. Plumbing--roughed in..................         3         2         3
11. Sewage disposal.......................         1         1         1
12. Heating--roughed in...................         1         1         1
13. Electrical--roughed in................         2         2         2
14. Insulation............................         2         2         2
15. Dry wall or plaster...................         8         8         7
16. Basement or porch floor, steps........         1         1         6
17. Heating--finished.....................         3         3         3
18. Flooring..............................         6         6         5
19. Interior carpentry, trim, doors.......         6         6         5
20. Cabinets and counter tops.............         1         1         1
21. Interior painting.....................         4         4         3
22. Exterior painting.....................         1         1         1
23. Plumbing--complete fixtures...........         4         4         3
24. Electrical--complete fixtures.........         1         1         1
25. Finish hardware.......................         1         1         1
26. Gutters and downspouts................         1         1         1
27. Grading, paving, landscaping..........         3         3         3
                                           -----------
      Total...............................       100       100       100
------------------------------------------------------------------------

Exhibit B to Subpart A of Part 1924--Requirements for Modular/Panelized 
                              Housing Units

    For the benefit of FmHA or its successor agency under Public Law 
103-354 this exhibit prescribes evaluation, acceptance, inspection and 
certification procedures formodular/panelized housing units proposed for 
use in Farmers Home Administration (FmHA) or its successor agency under 
Public Law 103-354 Rural Housing programs. It applies to proposed 
development packages provided either under a contract between an FmHA or 
its successor agency under Public Law 103-354 borrower and a single 
contractor or under a conditional commitment. This exhibit also

[[Page 122]]

describes the use of background information available through the 
Department of Housing and Urban Development (HUD) for analysis of 
manufactured products. This exhibit also applies to the evaluation of 
manufactured farm service buildings in paragraph XI, below. For the 
purpose of this exhibit, County Supervisor and County Office also mean 
District Director and District Office, respectively.
    I. Applicable Standards and Manuals.
    A. The HUD Handbook 4950.1, Technical Suitability of Products 
Program Technical and Processing Procedures, must be followed by housing 
manufacturers to obtain acceptance of their products. Acceptance 
documents issued by HUD include: Structural Engineering Bulletins (SEB) 
on a national basis, Area Letters of Acceptance (ALA) which when 
accepted by all Area HUD Offices in a HUD region will, in essence, 
become Regional Letters of Acceptance (RLA), Truss Connector Bulletins 
(TCB): and, Mechanical Engineering Bulletins (MEB). These documents as 
well as the Use of Material Bulletins (UM) and Materials Release 
Bulletins (MR) are addendums to the HUD Minimum Property Standards 
(MPS), Under handbook guidelines, HUD also examines state agency 
regulations concerning design, construction and labeling of modular/
panelized housing units and designates those states having procedures 
acceptable for use under HUD programs. Modular/panelized housing 
produced in these states is called Category III and is considered 
technically suitable for use without further structural analysis.
    B. All State FmHA or its successor agency under Public Law 103-354 
Offices should maintain a close working relationship with each HUD 
office in their jurisdiction to assure coordination. Any deviations in 
structure, materials or design from HUD acceptance documents must comply 
with one of the other applicable development standards.
    II. Modular Housing Units that Require Factory Inspections.
    Only those types which cannot be completely inspected on site are 
required to obtain acceptance from HUD. Those that receive acceptance 
will be periodically factory inspected by HUD or HUD's designated 
agency, usually about every 6 months.
    III. Panelized Housing Units that Do Not Require Factory 
Inspections.
    A. Housing completely assembled on the building site does not 
require HUD acceptance. This includes housing that is manufactured but 
is assembled on the site such as: Precut pieces, log wall houses, 
trussed roof rafters or floor trusses; open panel walls, and other types 
that can be completely inspected on site.
    B. Housing that is assembled in local materials dealers' yards for 
moving to local sites and to be purchased by an FmHA or its successor 
agency under Public Law 103-354 applicant, will be inspected during 
construction in the yard by the local FmHA or its successor agency under 
Public Law 103-354 County representative.These units must be constructed 
according to the applicable development standard and not transported out 
of the local FmHA or its successor agency under Public Law 103-354 
County Office jurisdiction. The inspection must be recorded on Form FmHA 
or its successor agency under Public Law 103-354 1924-12, ``Inspection 
Report.''
    IV. Manufacturer's Actions Required for Submissions to FmHA or its 
successor agency under Public Law 103-354 are listed in attachment 1 to 
this exhibit B.
    V. State FmHA or its successor agency under Public Law 103-354 
Office Actions when Manufacturing Facilities are in its Jurisdiction. 
The State Office, upon receipt of manufacturer's submission, must:
    A. Determine that the unit structural system has been accepted by 
HUD as appropriate under HUD Handbook 4950.1 requirements.
    B. Review the thermal characteristics and approach of the 
calculations to determine actions to be taken in compliance with 
paragraph IV C of exhibit D of this subpart.
    C. Review the proposal for compliance with Sec.  1924.5(d)(1) of 
this subpart.
    D. Determine that the prerequisites for consideration of acceptance 
by FmHA or its successor agency under Public Law 103-354 are met. The 
prerequisites include all of the following:
    1. A current acceptance document from HUD (SEB, RLA, ALA), except 
for Category III housing (modular/panelized housing that does not have 
to have a Structural Engineering Bulletin as designated by HUD). In 
Category III states, the state government requirements for manufactured 
housing must be followed.
    2. A current HUD Factory Inspection Report, Form No. 2051m, or in 
the case of Category III housing, a copy of the inspection report from 
the state government or accepted third party performing the factory 
inspection. Each report must be made by HUD or a HUD authorized agency, 
and must be no older than 6 months.
    3. A letter from the manufacturer requesting a review for 
acceptance. Enclosed with the letter shall be all the information listed 
in attachment 1 to this exhibit B.
    E. Issue acceptance letters to the manufacturer stating the 
conditions of acceptance in the format of attachment 2 to this exhibit 
B. The letter shall have an attachment listing all models accepted in 
the format of attachment 3 to this exhibit B. A copy of the acceptance 
letter and list of models shall be sent to each County Office in the 
state and, when requested by the manufacturer, to each other FmHA or its 
successor agency under

[[Page 123]]

Public Law 103-354 State Office in which the product is to be marketed.
    F. After initial review of a submission, maintain a master file of 
accepted manufacturers and models and review the file twice yearly to 
determine the currency of the factory inspection reports and HUD or 
state government acceptance documents.
    G. Notify manufacturers of overdue factory inspection reports, for 
acceptance of documents review and updating, using the format of 
attachment 4 to this exhibit B. Accompanying the notification will be a 
temporary acceptance sheet (Attachment 3 to this exhibit B) indicating 
to the manufacturer that the company models have temporary acceptance 
for 60 days. If the manufacturer provides evidence that a review is 
being processed by HUD, a maximum of an additional 90 days may be 
granted. Otherwise, the acceptance shall terminate on the last extension 
date and it will be necessary for the manufacturer to resubmit as if for 
initial acceptance.
    H. Distribute a list of added models, deleted models, or notice of 
deletion of any manufacturer's product to the County Offices and other 
State FmHA or its successor agency under Public Law 103-354 Offices as 
necessary.
    I. Issue an initial supply of Manufacturer's and Builder's 
Certification forms (Attachment 5 to this exhibit B) to each existing 
and newly accepted manufacturer. Manufacturers are to duplicate this 
form as necessary in their market areas.
    J. Resolve any problems with the manufacturer, as reported by the 
County Office. Action may include coordination, FmHA or its successor 
agency under Public Law 103-354 plant inspections or cancellation of 
acceptance letters when problems persist.
    VI. County Office Actions:
    A. When an application is received involving any of the 
manufacturer's products on the accepted list, the County Office FmHA or 
its successor agency under Public Law 103-354 authorized personnel will:
    1. Review the drawings and description of materials described in 
paragraphs A and B of attachment 1 to this exhibit B. The floor plans 
and elevations must be identifiable with the model listed in the 
accepted list issued by the State Office.
    2. Require the builder/dealer or manufacturer to provide any 
drawings necessary to adapt the house to the site conditions where the 
house will be located.
    3. Require site plan drawing such as those illustrated in 
attachments 1 and 2 to exhibit C of this subpart (available in any FmHA 
or its successor agency under Public Law 103-354 office).
    4. Inspect and identify the model delivered against the 
manufacturer's certification and the accepted drawings and description 
of materials before the unit has been set on the foundation.
    5. Require the builder/dealer to certify that the work for which the 
builder/dealer is responsible has been erected in compliance with the 
applicable development standard. This certification will be completed on 
a copy of attachment 5 to this exhibit B, and filed in County Office 
case file.
    6. Observe any noncompliance with the applicable development 
standard or with paragraphs IV and V of this exhibit B. In this respect:
    a. Minor noncompliance will be resolved by the manufacturer through 
the builder/dealer. In cases where there is no builder/dealer, the 
County Office may resolve such issues with the manufacturer directly.
    b. Noncompliance that cannot be resolved at the County Office level 
will be reported to the State Office.
    7. Inspect manufactured housing according to Sec.  1924.8(d) of this 
subpart.
    8. Be aware that the accepted list may include many models from 
which loan applicants may choose. No changes from accepted model designs 
are permitted. The model selected by an applicant should be appropriate 
to the needs of that particular family in accordance with 7 CFR part 
3550.
    VII. Noncompliance Issues.
    A. When minor issues are noted, the County Office will attempt to 
resolve them as described above. If they cannot be resolved locally, 
they will be referred to the State Office. When any issues cannot be 
resolved at State Office level, the National Office Program Support 
Staff (PSS) will be contacted for guidance.
    B. The National Office PSS coordinating with HUD, will take the 
appropriate actions to resolve the issues reported.
    C. Manufacturers and builder/dealers must be aware that if the FmHA 
or its successor agency under Public Law 103-354 inspector finds any of 
the following conditions, the inspector may refuse to accept the 
construction until corrections have been made:
    1. Evidence of noncompliance with any option of the method described 
in the HUD--SEB, RLA, or ALA.
    2. Faulty shop fabrication, including surface defects.
    3. Damage to shop fabricated items or materials due to 
transportation, improper storage, handling or assembly operation.
    4. Unsatisfactory field or site workmanship.
    VIII. Actions by Other State Offices. When a State Office receives a 
copy of the accepted list from the State Office in which a manufacturing 
plant is located, it will:
    A. Maintain a file, by manufacturer, of each accepted list of 
models.
    B. Provide copies of the accepted list of models to each County 
Office in the State.

[[Page 124]]

    C. Request a copy of the drawings, description of materials, and 
thermal calculations to determine compliance with the thermal 
requirements for the county in which the house is to be located 
according to exhibit D of this subpart.
    D. Check to see that County Offices within the state will act as 
prescribed in paragraph VI of this exhibit B.
    E. When two or more State Offices have different interpretations of 
the acceptability of a particular model, there must be an agreement 
between the states so that they will have the same requirements. If the 
states cannot agree, the National Office PSS will be consulted for 
guidance.
    IX. Subsequent Review.
    FmHA or its successor agency under Public Law 103-354 will make 
periodic reviews of houses, both site-built and houses manufactured 
offsite, to determine acceptability of the finished product. If, in the 
judgment of the FmHA or its successor agency under Public Law 103-354, 
the product has failed to perform satisfactorily, acceptance may be 
withdrawn. The State Director will notify the manufacturer and/or the 
builder/dealer of the reasons for the withdrawal no later than the time 
of withdrawal. Negotiations for corrections will be carried out by the 
County Office with the assistance of the State Office or National 
Office, as necessary.
    X. Materials and Products Acceptance--Material Release Bulletins, 
Use of Materials Bulletins, Manufacturer's Instructions.
    A. The Materials Release (MR) and Use of Materials Bulletins (UM) 
provide for the national acceptance of specific nonstandard materials 
and products not covered in the current HUD MPS.
    B. When contractors or builders intend to use products or materials 
not listed as approved in the MPS, the FmHA or its successor agency 
under Public Law 103-354 personnel reviewing or concerned with the 
approval of construction in which the product is to be used, will 
require the contractor or builder to furnish a Materials Release 
Bulletin or Use of Materials Bulletin on the materials or products. If 
the product has been accepted, the supplier should be able to obtain the 
bulletin for the contractor or builder from the manufacturer. These 
bulletins describe the products or materials limitations to use, method 
of installing or applying, approved type of fasteners, if used, etc. and 
will provide the contractor with instructions as to proper installation 
or application.
    C. When FmHA or its successor agency under Public Law 103-354 
personnel are unfamiliar with any materials or products which have been 
accepted in the MPS, they will request the contractor or builder to 
furnish the manufacturer's instructions to assure that the materials or 
products are properly installed or applied. Any questions on any product 
that cannot be resolved in the County Office should be referred to the 
State Office. When the question cannot be resolved at the State Office 
level, the National Office PSS should be consulted for guidance.
    XI. Manufactured Farm Service Buildings.
    A. When a loan application is received that involves a manufactured 
building or special equipment that cannot be completely inspected on the 
site, the local State Land Grant University recommendations should be 
requested.
    B. When the County Office questions the advisability of making a 
loan on a manufactured building, the State Office should also be 
consulted.
    C. The State Office should review and make recommendations to the 
County Office. If doubt still exists, the National Office PSS should be 
consulted for guidance.

 Attachment 1--Required Information for Acceptance of Modular/Panelized 
                              Housing Units

    The manufacturer or sponsor of modular/panelized housing units 
wishing to participate in the Farmers Home Administration (FmHA) or its 
successor agency under Public Law 103-354 Rural Housing programs shall 
submit to the FmHA or its successor agency under Public Law 103-354 
State Director having jurisdiction over the state in which the proposed 
housing is to be manufactured, two complete sets of the information 
listed below for evaluation. Submissions not including all the 
information requested will be returned.
    A. Statements:
    1. Name and location of organization, including titles and names of 
its principal officers.
    2. A brief description of plant facilities.
    3. Extent of intended market distribution, including a list of any 
other states in which units will be marketed.
    4. The method of quality control during site installation.
    5. A copy of the applicable current HUD Structural Engineering 
Bulletin (SEB), Regional Letter of Acceptance (RLA), or Area Letter of 
Acceptance (ALA).
    6. A current factory inspection report made within 6 months by HUD 
or HUD authorized agency.
    7. Name and address of any third party inspection agency.
    8. Location of nearest assembled product for inspection.
    9. Field manuals for site installation and/or set-up procedures.
    10. Specifications or descriptions of materials using either Form 
FmHA or its successor agency under Public Law 103-354 1924-2, (HUD-FHA 
Form 2005), ``Description of Materials,'' including sizes, species and 
grade of all building and finishing materials. All blanks should be 
filled and additional sheets may be attached as well as equipment 
manufacturer's brochures. Use an asterisk

[[Page 125]]

(*) to denote all items of onsite construction that will be provided by 
the builder-dealer. The builder-dealer must complete a form for the 
builder-dealer's portion of the work. Use N/A in any blank which is not 
applicable.
    11. Names and addresses of other public and private agencies which 
have rendered or been asked to render a technical suitability or 
acceptance determination with respect to the products or structural 
methods employed.
    12. Written certification that construction drawings and 
specifications conform with the applicable development standard.
    13. Any other pertinent information.
    14. An index of all documents submitted.
    B. Working Drawings. For emphasis as to the details required for 
modular/panelized housing proposals, the following items are listed in 
addition to and in more detail than the requirements in exhibit C of 
this subpart. In some cases, the drawing presentation sheets may be 
required to be reduced to 200 mm by 266 mm (8x10\1/2\ inches) sheet 
size:
    1. Foundation and/or Basement Plan. This plan shall include 
anchorage details, exterior and interior dimensions, typical footings, 
wall thickness, pilaster sizes and locations, column or pier sizes and 
locations and girders required to support the structures. Show location 
of all equipment (furnace, water heater, laundry tubs, sump, etc.) floor 
drains, electrical outlets, electrical entrance panels, and all doors 
and windows or crawl space vents with all sizes indicated.
    2. Floor Plans of all levels. Show square footage of each habitable 
room with square footage of each area of natural light and ventilation. 
In addition, a design sketch scaled properly to illustrate a typical 
furniture arrangement for all habitable levels is required to indicate 
intended occupancy functions of the design. A window and door schedule 
should also be provided indicating glazed size, sash size, and thermal 
conductance of each type.
    3. All exterior elevations including opening and sizes; wall finish 
materials, flashing, finish grades intended, depth of footings when 
known, finish floor, ceiling heights, roof slope, location of 
downspouts, gutters, vents for both structural spaces and for equipment. 
Indicate construction joint locations and details of connections between 
sections, modules or components.
    4. Building cross sections showing size and spaces of all framing 
members from lowest member (bottom of footing) to highest point of roof 
(ridge) plus;
    (a) Type of material and method of application of all covering 
materials, such as subflooring, combination subflooring and 
underlayment, sheathing, interior and exterior finishes;
    (b) Complete details including computations of trussed rafter 
systems with the architect/engineer's stamp of those responsible for the 
design.
    (c) Details of insulation and vapor barrier installation and attic 
ventilation. If the thermal characteristics to be provided are 
determined according to optional method for overall structure 
performance allowed in exhibit D of this subpart, the submission and 
complete engineering calculations with all details of construction shall 
be sent to Administrator, Attn. PSS, FmHA or its successor agency under 
Public Law 103-354 Washington, DC 20250, for analysis as prescribed in 
paragraph IV C of exhibit D of this subpart.
    (d) Special details as necessary to show any special features of 
construction, including method of fabricating, erection, joining, and 
finishing of all elements; and
    (e) Details and sections of stairways including all critical 
dimensions, such as, riser, run and headroom.
    5. Interior elevations of kitchen cabinets and bathroom elevations 
with schedule of all shelf, counter-top and drawer footage. Indicate 
whether kitchen cabinets are to be custom made for each model or made 
for any model by a cabinet manufacturing company.
    6. Plumbing schematics, including pipe materials, sizes and plumbing 
code compliance.
    7. Heating plan, including heat loss of each room, is needed for 
heating systems, sizings and capacities, forced air, electric baseboard, 
or electric space heaters and, if applicable, heat gain. For forced air 
systems, include supply and return duct layout and location of 
appropriate diffusers.
    8. Electrical plan, including circuit chart or diagram.
    9. Any other pertinent facts or drawings that will better explain 
why and how certain unusual materials or structural methods are 
employed.

                              Attachment 2

John Dough Manufacturing Company,
3444 Residence Avenue,
Elkton, Indiana 00051.

    Dear Sirs: Athough the documents submitted to this office have only 
received a cursory review, they appear to be in substantial compliance 
to qualify your firm for the type of acceptance indicated on the 
attached list.
    The acceptance being issued is subject to this letter of conditions, 
compliance with HUD Handbook 4950.1 Technical Suitability of Products 
Program Technical and Processing Procedures, compliance with Farmer Home 
Administration (FmHA) or its successor agency under Public Law 103-354) 
Thermal Performance Construction Standards, and compliance with the 
conditions set forth in the HUD acceptance document, if

[[Page 126]]

applicable, whose number appears on the acceptance.
    The manufacturer and the authorized builder-dealer bear the 
responsibility of complying with the above, the exhibits submitted and 
the applicable development standards.
    The manufacturer and/or builder-dealer also shall:
    1. Provide positive identification of the modular unit by model, 
date of manufacture and factory in which the unit was manufactured.
    2. Furnish with each home to be financed by FmHA or its successor 
agency under Public Law 103-354 in------(State)------, a written 
certificate (Attachment 5 to this exhibit B) endorsed by the builder-
dealer certifying that all requirements have been satisfied.
    3. Furnish the local FmHA or its successor agency under Public Law 
103-354 County Supervisor with a complete set of drawings including site 
plans, description of materials, structural engineering bulletins when 
applicable in the state, and documentation relating to the manufacture, 
transportation, erection, and installation for each model of modular/
panelized housing to be financed in the county. Electrical, plumbing and 
heating plans must be furnished for each model in addition to the basic 
drawings. Floor plans and elevation drawings may vary from those listed 
in attachment 1 of exhibit B to FmHA or its successor agency under 
Public Law 103-354 Instruction 1924-A to reflect each of the 
manufacturer's models provided they are in compliance with the 
applicable development standard and the FmHA or its successor agency 
under Public Law 103-354 Thermal Performance Construction Standards and 
provided they have been accepted and listed in this state's approval of 
manufactured structures. No field alterations to the accepted models 
will be allowed.
    4. Furnish, when required by the County Supervisor, foundation 
drawings (including special foundation design considerations when the 
unit is to be erected in seismic zones 1, 2 or 3) adapting the modular 
home to any unusual site conditions needing information additional to 
that furnished by the standard drawings.
    5. Furnish the County Office with a copy of inspection reports of 
the manufacturing facilities immediately after the inspection reports 
have been completed.
    6. Allow FmHA or its successor agency under Public Law 103-354 
personnel to inspect the manufacturing facilities at any time and 
furnish all FmHA or its successor agency under Public Law 103-354 State 
Offices, where acceptance has been obtained, with a copy of any FmHA or 
its successor agency under Public Law 103-354 inspection reports 
immediately after the inspection reports have been completed.
    7. In the event there are major changes to the submitted drawings, 
obtain approval under the HUD Technical Suitability of Products Program 
and submit verification of this approval to the County Office for 
listing on the state's accepted list. Any modular home shipped with 
major changes incorporated, without such changes on file at the County 
Office may be rejected.

(Add state and local requirements appropriate to this letter of 
conditions.)
    This acceptance may be subject to corrective action when 
deficiencies are noted in the product, field inspections, manufacturing 
facilities, or when there is noncompliance with the provisions of the 
HUD Technical Suitability of Products Program.
    The inclusion of these models on the accepted list is based only on 
the material and structural aspects of the manufactured units. Final 
determination of acceptability rests with FmHA or its successor agency 
under Public Law 103-354 personnel. Other factors relating to the 
property in its entirety such as appraisal, location, sustained market 
acceptance, architectural planning and appeal, thermal qualities, 
mechanical and electrical equipment, etc., must be considered in the 
final determination.
    Your cooperation in this acceptance program is appreciated.
     Sincerely,

State Director

                              Attachment 3

Date ------ File No. ------

              Acceptance of Modular/Panelized Housing Units

                     (Based on HUD Handbook 4950.1)

Manufacturer:

------ Acceptance Document ------
------ Type of Acceptance:
------ ---- Regular
------ ---- Temporary, Expires ------
Plant Locations:________________________________________________________
Date of Latest Plans
Reviewed________________________________________________________________
Date of Latest Factory
Inspection______________________________________________________________
Acceptance Document Review
Date____________________________________________________________________

 FmHA or its successor agency under Public Law 103-354 Instruction 1924-
                              A, exhibit D

               Thermal Performance Construction Standards

State Office Review

(Exh. D, IV, C, 1, a or b)
National Office Review

(Exh. D, IV, C, 2)

Maximum Winter Degree Days for
State ------ Walls R ------

[[Page 127]]

Glazing/Gross Wall Area Ratio ------%
Ceilings R ------
Glazing ------ Pane(s)
Floor R ------
Glazing ------ Pane(s)
Insulated Door ------
Wood and Storm ------
Insulated Door ------
Wood and Storm ------

Models Accepted:

                              Attachment 4

John Dough Manufacturing Company,
3444 Residence Avenue,
Elktown, Indiana 00051.

    Dear Sirs: As set forth in acceptance letters issued by this office, 
acceptance of modular/panelized homes in this state is based on HUD's 
Technical Suitability of Products Program and the conditions stated in 
the acceptance letter. Your file has been reviewed and the following has 
been noted.

----An inspection report of your manufacturing facilities is overdue. 
          Inspections are required twice yearly. The last inspection 
          report on file at this office is dated ------.
----Your Structural Engineering Bulletin No. ---- dated ---- has not 
          been reviewed by HUD. Reviews are generally required every 
          three years. Temporary acceptance will be considered when you 
          provide evidence that the review documents have been submitted 
          to HUD.
----The drawings being used for the construction of your homes are not 
          listed in your Structural Engineering Bulletins. Drawings used 
          in the field should be those upon which the Structural 
          Engineering Bulletin was issued.
----There have been ---- revisions to the development standards since --
          ----, the date of the last drawings we have on file for your 
          homes. It is recommended that you review the revisions to 
          ascertain whether your drawings need to be updated.

    Please submit a written response and appropriate documents for the 
above items within ---- days, or your product will be removed from the 
accepted list until your firm can again qualify. If you have any 
problems furnishing the above within the time stated, please contact 
this office.
    We look forward to receiving the materials indicated so that your 
firm's listing may be continued.
     Sincerely,

State Director

                              Attachment 5

                      Certification by Manufacturer

Delivery location of structure

for component___________________________________________________________
________________________________________________________________________

This is to certify that
Model: ------------,
Serial  ------------,
manufactured ------
(date) ------, 19 -- in
---- (location) ------
and being sold to ------
(name of ------------
builder-dealer or borrower) has been manufactured in accordance with 
drawings and specifications on file in the FmHA or its successor agency 
under Public Law 103-354 State Office and that the construction complies 
with applicable development standards, except as modified by HUD 
Acceptance Document (SEB, RLA, ALA,)
NO. ------------,
dated --------,
and in compliance with the FmHA or its successor agency under Public Law 
103-354 Thermal Performance Construction Standards.
________________________________________________________________________

Date
________________________________________________________________________

Signature of Authorized Official

________________________________________________________________________
Title

                     Certification by Builder-Dealer

------ (Name of
builder-dealer) ------
certifies that the foundation and other on-site work has been 
constructed in accordance with the drawings and specifications and the 
above structure or component has been erected, installed or applied in 
compliance with the applicable development standards.
    It is understood that the manufacturer's certification does not 
relieve the builder/dealer of responsibility under the terms of the 
builder's warranty required by the National Housing Act.
________________________________________________________________________
Date
________________________________________________________________________
Signature of Authorized Official
________________________________________________________________________
Title

[52 FR 8002, Mar. 13, 1987, as amended at 67 FR 78327, Dec. 24, 2002]

      Exhibit C to Subpart A of Part 1924--Guide for Drawings and 
                             Specifications

    This exhibit applies to all new buildings to be constructed, 
including all single family housing and related facilities and, as 
applicable, farm housing and farm service buildings.

[[Page 128]]

                               I. General

    The documents recommended in this exhibit correspond with the list 
of exhibits in Chapter 3 of the Department of Housing and Urban 
Development (HUD) ``Architectural Handbook for Building Single-Family 
Dwellings'' No. 4145.2. This exhibit may be used as a public handout and 
shall be used as a guide for drawings and specifications to be submitted 
in support of any type of application involving construction of major 
new buildings or extensive rehabilitation, alterations or additions to 
existing buildings. Descriptions of work for minor alterations or 
repairs need pertain only to work to be done and may be in narrative 
form when acceptable to the County Supervisor. Complete and accurate 
drawings and specifications are necessary:
    A. To determine the acceptability of the proposed development,
    B. To determine compliance with the applicable standards and codes,
    C. To prepare a cost estimate, and
    D. To provide a basis for inspections and the builder's warranty.

                  II. Drawings for a Specific Structure

    Drawings for individual single dwellings shall provide at least the 
following:
    A. Plot Plan. Refer to Example Plot Plan No. 1, attachment 1 to this 
exhibit C (available in any FmHA or its successor agency under Public 
Law 103-354 office). Ratio: 1:240 (1 = 20[foot]) (at scale, 
1 = 20[foot] or \1/16\ = 1[foot] 0 
minimum):
    1. Lot and block number.
    2. Dimensions of plot and north point.
    3. Dimensions of front, rear and side yards.
    4. Location and dimensions of garage, carport and other accessory 
buildings.
    5. Location and sizes of walks, driveways and approaches.
    6. Location and sizes of steps, terraces, porches, fences and 
retaining walls.
    7. Location and dimensions of easements and established setback 
requirements, if any.
    8. Elevations at the following points: (a) first floor of dwelling 
and floor of garage, carport and other accessory building; (b) finish 
curb or crown of street at points of extension of lot lines; (c) finish 
grade elevation at each principal corner of structure; (d) finish grade 
at bottom of drainage swales at extension of each side of structure as 
feasible.
    9. The following additional elevations, as applicable, if the 
topography of the site or the design of the structure is such that 
special grading, drainage or foundations may be necessary. Examples are 
irregular or steeply sloping sites, filled areas on sites, or multi-
level structure designs; (a) finish and existing grade elevations at 
each corner of the plot; (b) existing and finish grade at each principal 
corner of dwelling; (c) finish grade at both sides of abrupt changes of 
grade such as retaining walls, slopes, etc.; (d) other elevations that 
may be necessary to show grading and drainage.
    10. Indication of type and approximate location of drainage swales.
    11. When an individual water supply and/or sewage system is 
proposed, drawings, specifications and other items prescribed in 
paragraph V of this exhibit.
    B. Floor Plans.
    1. Scale, 1:50 (\1/4\ = 1[foot] 0).
    2. Floor plan of each floor and basement, if any. Show typical 
furniture locations to suggest intended use of each habitable space.
    3. Plan of all attached terraces and porches, and of garage or 
carport.
    4. If dwelling is of crawl-space type, a separate foundation plan. 
Slab-type foundation may be shown on sections.
    5. Direction, size and spacing of all floor and ceiling framing 
members, girders, columns or piers.
    6. Location of all partitions and indication of door sizes, and 
direction of door swing.
    7. Location and size of all permanently installed construction and 
equipment such as kitchen cabinets, closets, storage shelving, plumbing 
fixtures, water heaters, etc. Details of kitchen cabinets may be on 
separate drawing.
    8. Location and symbols of all electrical equipment, including 
switches, outlets, fixtures, etc.
    9. Heating system on separate drawing, or when it may be shown 
clearly it may be part of the floor or basement plan showing: (a) layout 
of system; (b) location and size of ducts, piping, registers, radiators, 
etc.; (c) location of heating unit and room thermostat; (d) total 
calculated heat loss of dwelling including heat loss through all 
vertical surfaces, ceiling and floor. When a duct or piped distribution 
system is used, calculated heat loss of each heated space is required.
    10. Cooling system, on separate drawings or, as part of heating 
plan, floor or basement plan showing: (a) layout of system; (b) location 
and size of ducts, registers, compressors, coils, etc.; (c) heat gain 
calculations, including estimated heat gain for each space conditioned; 
(d) model number and Btu capacity of equipment or units in accordance 
with applicable Air Conditioning and Refrigeration Institute (ARI) or 
American Society of Refrigerating Engineers (ASRE) Standard; (e) Btu 
capacity and total kilowatt (KW) input at stated local design 
conditions; (f) if room or zone conditioners are used, provide location, 
size and installation details.
    C. Exterior Elevations.
    1. Scale, 1:50 (\1/4\ = 1[foot] 0). 
Elevations, other than main elevation, which contain no special details 
may be drawn at 1:100 (\1/8\ = 1[foot] 0).
    2. Front, rear and both side elevations, and elevations of any 
interior courts.
    3. Windows and doors--indicate size unless separately scheduled or 
shown on floor plan.

[[Page 129]]

    4. Wall finish materials where more than one type is used.
    5. Depth of wall footings, foundations, or piers, if stepped or at 
more than one level.
    6. Finish floor lines.
    7. Finish grade lines at buildings.
    D. Details and Sections.
    1. Section through exterior wall showing all details of construction 
from footings to highest point of road. Where more than one type of wall 
material is used, show each type. Scale 1:25 (\3/8\ = 1[foot] 
0) minimum.
    2. Section through any portion of dwelling where rooms are situated 
at various levels or where finished attic is proposed, Scale, 1:50 (\1/
4\ = 1[foot] 0) minimum.
    3. Section through stair wells, landings, and stairs, including 
headroom clearances and surrounding framing. Scale, 1:50 (\1/
4\ = 1[foot] 0) minimum.
    4. Details of roof trusses, if proposed, including connections and 
stress or test data with seal of architect or engineer responsible. 
Scale of connections, 1:25 (\3/8\ = 1[foot] 0) 
minimum.
    5. Elevation and section through fireplace. Scale, 1:25 (\3/
8\ = 1[foot] 0) minimum.
    6. Elevations and section through kitchen cabinets, indicating 
shelving. Scale, 1:50 (\1/4\ = 1[foot] 0) minimum.
    7. Sections and details of all critical construction points, 
fastening systems, anchorage methods, special structural items or 
special millwork. Scale as necesaary to provide information, 1:25 (\3/
8\ = 1[foot] 0) minimum.

                III. Master Drawings for Group Structures

    Drawings for a group of structures (such as for several conditional 
commitments) may be submitted in lieu of drawings for each individual 
property when a number of applications are simultaneously submitted 
involving repetition of the same type structure.
    A. Master plot plan shall include the following:
    1. Scale which will provide the following information in a clear and 
legible manner.
    2. North point.
    3. Location and width of streets and rights-of-way.
    4. Location and dimensions of all easements.
    5. Dimensions of each lot.
    6. Location of each dwelling on lot with basic dimensions.
    7. Dimensions of front, rear and side yards.
    8. Location and dimensions of garage, carports and other accessory 
buildings.
    9. Identification of each lot by number and indication of basic plan 
and elevation type.
    10. Location of walks, driveways and other permanent improvements.
    B. Typical plot plan for each basic type dwelling may be submitted 
in lieu of fully detailing each lot on master plot plan, when topography 
and lot arrangements present no individual planning or construction 
problems.
    1. Information not shown on the typical plot plan shall be included 
on the master plot plan.
    2. Typical plot plans shall not be used for corner lots, lots with 
irregular boundaries, lots involving pronounced topographic variations 
or other lots where individual detailing is necessary.
    3. Location of dwelling on typical lot and full dimensions.
    4. Location and dimensions of all typical improvements, such as 
garage, carport, accessory buildings, walks, drives, steps, porches, 
terraces, trees, shrubs, retaining walls, fences, etc.
    C. Grading may be shown on separate grading plan or on the master 
plot plan. Scale shall be sufficiently large to provide the following 
information in clear and legible manner:
    1. Contours of existing grade at intervals of not more than 1.524 m 
(5 feet). Intervals less the 1.524 m (5 feet) may be required when 
indicated by the character of the topography.
    2. Location of house and accessory buildings on each lot.
    3. Identification of each lot by number.
    4. Elevations in accordance with individual plot plan including 
bench mark and datum or, in lieu of finish grade elevations, contours of 
proposed finish grading may be submitted. Contour intervals selected 
shall be appropriate to the topography of the site.
    5. Lot grading shall be shown by indicating protective slopes and 
approximate location of drainage swales.
    6. Location of drainage outfall, if any drainage is not to a street.
    D. Floor plans, elevations, sections and details shall be submitted 
for each basic plan. Alternate elevations to basic plan may be shown at 
scale, 1:100 (\1/8\ = 1[foot] 0).

                           IV. Specifications

    Form FmHA or its successor agency under Public Law 103-354 1924-2, 
``Description of Materials,'' or other acceptable and comparable 
descriptions of all materials forms shall be submitted with the 
drawings. The forms shall be completed in accordance with the 
instructions on Form FmHA or its successor agency under Public Law 103-
354 1924-2 to describe the materials to be used in the construction.
    A. Form FmHA or its successor agency under Public Law 103-354 1924-2 
may be reproduced if size, format and printed text are identical to the 
current official form. When it is reproduced, the following deletions 
must be made:
    1. All lines indicating FmHA or its successor agency under Public 
Law 103-354 form numbers or other Government agency initials and/or 
numbers, and

[[Page 130]]

    2. The United States Government Printing Office (GPO) imprint and 
reference number.
    B. The material identification shall be in sufficient detail to 
fully describe the material, size, grade and when applicable, 
manufacturer's model or identification numbers. When necessary, 
additional sheets must be attached as well as manufacturer's 
specification sheets for equipment and/or special materials, such as 
aluminum siding or carpeting.

         V. Individual Water Supply and Sewage Disposal Systems

    When an individual water and/or sewage disposal system is proposed, 
the following additional information must be submitted:
    A. Approval and recommendations of other authorities.
    1. A written opinion by the health authority having jurisdiction 
that the site is suitable and acceptable for the proposed systems(s) 
and,
    2. If available, a soils report from the local USDA-Soil 
Conservation Service and any recommendations they may have.
    3. Approval of appropriate environmental control authority.
    4. A signature of the health authority on the plot plan indicating 
approval of the design of the proposed system.
    B. Plot Plan. Refer to Example Plot Plan No. 2, attachment 2 to this 
exhibit C (available in any FmHA or its successor agency under Public 
Law 103-354 office).
    1. Location and size of septic tank, distribution box, absorption 
field or bed, seepage pits and other essential parts of the sewage 
disposal system and distance to all individual wells, open streams or 
drainageways.
    2. Location of well, service line and other essential parts of the 
water supply system and distance to other wells and/or sewage disposal 
systems.
    3. Exact location of individual systems (water or sewage) on 
adjacent properties and description of system, if available.
    C. Construction details of all component parts of individual water 
supply and sewage disposal systems shall clearly indicate material, 
equipment and construction. Extra sheets and drawings should be added as 
necessary to fully explain the proposed installation.

 Exhibit D to Subpart A of Part 1924--Thermal Performance Construction 
                                Standards

                               I. Purpose

    This exhibit prescribes thermal performance construction standards 
to be used in all housing loan and grant programs. These requirements 
shall supersede the thermal performance requirements in any of the 
development standards in Sec.  1924.4(h) of this subpart.

                               II. Policy

    All loan or grant applications involving new construction (except 
for new Single Family Housing (SFH)) and all applications for 
conditional commitments (except for new SFH) shall have drawings and 
specifications prepared to comply with paragraphs IV A or C and IV D of 
this exhibit. All new SFH construction shall have drawing and 
specifications prepared to comply with paragraph IV F of this exhibit. 
All existing dwellings to be acquired with FmHA or its successor agency 
under Public Law 103-354 loan funds shall be considered in accordance 
with paragraph IV B or C of this exhibit.

                            III. Definitions

    A. British thermal unit (Btu) means the quantity of heat required to 
raise the temperature of one pound (.4535 Kg.) of water by one degree 
Fahrenheit (F). For example, one Btu is the amount of heat needed to 
raise the temperature of one pound of water from 59 degrees F to 60 
degrees F.
    B. Glazing is the material set into a sash or door when used as a 
natural light source and/or for occupant's views of the outdoors.
    C. ``R'' value, thermal resistence, is a unit of measure of the 
ability to resist heat flow. The higher the R value, the higher the 
insulating ability.
    D. ``U'' value is the overall coefficient of heat transmission and 
is the combined thermal value of all the materials in a building 
section. U is the reciprocal of R. Thus U=1/R or R=1/U or 1/C where C is 
the thermal conductance and is the unit of measure of the rate of heat 
flow for the actual thickness of a material one square foot in area at a 
temperature of one degree Fahrenheit. The lower the U value, the higher 
the insulating ability.
    E. Winter degree-day is a unit based on temperature difference and 
time. For any one day, when the mean temperature is less than 65 degrees 
F (18.3 degrees Celsius), there are as many degree-days as the number of 
degrees difference between the mean temperature for the day and 65 
degrees F. The daily mean temperature is computed as half the total of 
the daily maximum and daily minimum temperatures.
    F. CABO Model Energy Code, 1992 Edition (MEC-92)--This code sets 
forth the minimum energy/thermal requirements for the design of new 
buildings and structures or portions thereof and additions to existing 
buildings. The MEC is maintained by the Council of American Building 
Officials (CABO).

                        IV. Minimum Requirements

    A. All multifamily dwellings to be constructed with FmHA or its 
successor agency

[[Page 131]]

under Public Law 103-354 loan and/or grant funds and all repair, 
remodeling, or renovation work performed on single family and 
multifamily dwellings with FmHA or its successor agency under Public Law 
103-354 loan and/or grant funds shall be in conformance with the 
following, except as provided in paragraphs IV C 3 and IV D of this 
exhibit:

         New Construction--Maximum U Values for Ceiling, Wall And Floor Section of Various Construction
----------------------------------------------------------------------------------------------------------------
                                        Ceilings              Floors     Glazing
       Winter degree days \1\             \2\       Walls      \3\         \4\               Doors \5\
----------------------------------------------------------------------------------------------------------------
1000 or less........................         0.05     0.08       0.08        1.13  .............................
1001 to 2500........................          .04      .07        .07         .69  .............................
2501 to 4500........................          .03      .05        .05         .69  Storm door if hollow core
                                                                                    door or if over 25% glass.
4501 to 6000........................          .03      .05        .05         .47  Storm Door.
6001 or more........................         .026      .05        .05         .47  Storm Door.
----------------------------------------------------------------------------------------------------------------
Note. U values are not adjusted for framing. Values calculated for components may be rounded. For example, a
  total R Value of 18.88 converts to a U value of .0529 rounded to .05.
\1\ Winter degree-days may be obtained from the ASHRAE Handbook; the ``NAHB Insulation Manual for Homes/
  Apartments''; local utilities; and the National Climatic Center, Federal Building, Asheville, NC. Manuals are
  available from NAHB RF, Rockville, MD 20850, or NMWIA, 382 Springfield Avenue, Summit, NJ 07901. Other sources
  of degree day data may be used if available from a recognized authority.
\2\ Insulation must be continuous (i.e. no gaps) above all ceiling joists. In pitched roof construction,
  compression of insulation at the outside building walls is permitted to allow a 1 ventilation space
  under the roof sheathing. For any loose fill insulation, a baffle must be provided. Raised trusses are not
  required.
\3\ For floors of heated spaces over unheated basements, unheated garages or unheated crawl spaces, the U value
  of floor section shall not exceed the value shown. A basement, crawl space, or garage shall be considered
  unheated unless it is provided with a positive heat supply to maintain a minimum temperature of 50 degrees F.
  Positive heat supply is defined by ASHRAE as ``heat supplied to a space by design or by heat losses occurring
  from energy-consuming systems or components associated with that space.''
 AWhere the walls of an unheated basement or crawl space are insulated in lieu of floor insulation, the total
  heat loss attributed to the floor from the heated area shall not exceed the heat loss calculated for floors
  with required insulation.
 AInsulation may be omitted from floors over heated basement areas or heated crawl spaces if foundation walls
  are insulated. The U value of foundation wall sections shall not exceed the value shown. This requirement
  shall include all foundation wall area, including header joist (band joist), to a point 50 percent of the
  distance from a finish grade to the basement floor level. Equivalent Uo configurations are acceptable.


 Maximum U Values of the Foundation Wall Sections of Heated Basement Not
         Containing Habitable Living Area or Heated Crawl Space
------------------------------------------------------------------------
  Winter degree-days (65 F base)         Maximum U value       Glazing*
------------------------------------------------------------------------
2500 or less......................  No requirement..........        1.13
2501 to 4500......................  0.17....................        1.13
4501 or more......................  0.10....................         .69
------------------------------------------------------------------------
*Glazing in heated basement shall be limited to 5 percent of floor area
  unless alternative Uo combination is documented.
\4\ Sliding glass doors are considered as glazing. The glazing value is
  for glass only. Glazing shall be limited to 15 percent of the gross
  area of all exterior walls enclosing heated space, except when
  demonstrated that the winter daily solar heat gain exceeds the heat
  loss and the glass area is properly screened from summer solar heat
  gain.
\5\ 1\3/4\ inch metal-faced door systems with rigid insulation core and
  durable weatherstripping providing a ``U'' value equivalent to a wood
  door with storm door and an infiltration rate no greater than .50 cfm
  per foot of crack length tested according to ASTM E-283 at 1.567 psf
  of air pressure, may be substituted for a conventional door and storm
  door. All doors shall be weatherstripped. Any glazed areas must be
  double-glazed.


       Minimum R Values of Perimeter Insulation for Slabs-on-Grade
------------------------------------------------------------------------
                                                Minimum R values*
    Winter degree-days (65 F base)     ---------------------------------
                                          Heated slab     Unheated slab
------------------------------------------------------------------------
500 or less...........................             2.8  ................
1000..................................             3.5  ................
2000..................................             4.0               2.5
3000..................................             4.8               2.8
4000..................................             5.5               3.5
5000..................................             6.3               4.2
6000..................................             7.0               4.8
7000..................................             7.8               5.5
8000..................................             8.5               6.2
9000..................................             9.2               6.8
10000 or greater......................            10.0               7.5
------------------------------------------------------------------------
*For increments between degree days shown, R values may be interpolated.

      
    B. All existing dwellings to be purchased with RH loan and grant 
funds shall be insulated in accordance with the following:
      
      

[[Page 132]]



       Existing Construction--Maximum U Values for Ceiling, Wall and Floor Section of Various Construction
----------------------------------------------------------------------------------------------------------------
                                                    Walls     Floors
       Winter degree days \1\           Ceilings     \2\      \3, 4\     Glazing             Doors \5\
----------------------------------------------------------------------------------------------------------------
1000 or less........................         0.05  .......       0.08        1.13  .............................
1001 to 2500........................          .04  .......        .07         .69  .............................
2501 to 4500........................          .03  .......        .05         .69  Storm door if hollow core
                                                                                    door or if over 25% glass.
4501 to 6000........................          .03  .......        .05         .69  Storm Door.
6001 to 7000........................         .026  .......        .05         .69  Storm Door.
7001 or more........................         .026  .......        .05         .69  Storm Door.
----------------------------------------------------------------------------------------------------------------
Note. U values are not adjusted for framing. Values calculated for components may be rounded. For example, a
  wall section with a total R Value of 18.88 converts to a U value of .0529 rounded to .05.
\1\ Winter degree days may be obtained from the ASHRAE Handbook; the ``NAHB Insulation Manual for Homes/
  Apartments;'' local utilities; and the National Climatic Center, Federal Building, Asheville, NC. Manuals are
  available from NAHB RF, Rockville, MD 20850, or NMWIA, 382 Springfield Avenue, Summit, NJ 07901. Other sources
  of degree day data may be used if available from a recognized authority.
\2\ Walls shall be insulated as near to new construction standards as economically feasible. Any exterior wall
  framing exposed during repair or rehabilitation work shall have vapor barrier installed and be fully
  insulated.
\3\ For floors of heated spaces over unheated basements, unheated garages or unheated crawl spaces the U value
  of floor section shall not exceed the value shown.
A basement, crawl space or garage shall be considered unheated unless it is provided with a positive heat supply
  to maintain a minimum temperature of 50 degrees F. Positive heat supply is defined by ASHRAE as ``heat
  supplied to a space by design or by heat losses occurring from energy-consuming systems or components
  associated with that space.''
Where the walls of an unheated basement or crawl space are insulated in lieu of floor insulation, the total heat
  loss attributed to the floor from the heated area shall not exceed the heat loss calculated for floors with
  required insulation.
Insulation may be omitted from floors over heated basement areas or heated crawl spaces if foundation walls are
  insulated. The U value of foundation wall sections shall not exceed the value shown. This requirement shall
  include all foundation wall area, including header joist (band joist), to a point 50 percent of the distance
  from a finish grade to the basement floor level. Equivalent Uo configurations are acceptable.


 Maximum U Values of the Foundation Wall Sections of Heated Basement Not
         Containing Habitable Living Area or Heated Crawl Space
------------------------------------------------------------------------
  Winter degree days (65 F base)         Maximum U value       Glazing*
------------------------------------------------------------------------
2500 or less......................  No requirement..........        1.13
2501 to 4500......................  0.17....................        1.13
4501 or more......................  0.10....................         .69
------------------------------------------------------------------------
* Glazing in heated basement shall be limited to 5 percent of floor area
  unless alternative Uo combination is documented.
\4\ Slab edge insulation should be provided wherever practical in areas
  of 2500 or more winter degree-days. Rigid insulation placed on the
  exterior face of the slab shall be protected by a durable and weather
  resistant material.
\5\ Storm doors are not required for double doors, sliding doors or
  others where installation would be economically infeasible. 1\3/4\
  inch metal-faced door systems with rigid insulation core and durable
  weatherstripping providing a ``U'' value equivalent to a wood door
  with storm door and an infiltration rate no greater than .50 cfm per
  foot of crack length, tested according to ASTM E-283 at 1.567 psf of
  air pressure may be substituted for a conventional door and storm
  door. All doors shall be weatherstripped.

    C. Optional Standards
    Housing design not in compliance with the requirements of paragraph 
IV A or B of this exhibit may be approved in accordance with the 
provisions of this paragraph. Requests for acceptance proposed under 
paragraph C 1 of this exhibit, must be approved by the State Director. 
Requests for acceptance of site-built housing proposed under paragraph C 
2 of this exhibit must be approved by the Administrator. Requests for 
acceptance of manufactured housing proposed under paragraph C 2 of this 
exhibit may be approved by the State Director. All submissions of 
proposed options to the State Director or Administrator shall contain 
complete descriptions of materials, engineering data, test data (when U 
values claimed are lower than the ASHRAE Handbook of Fundamentals), and 
calculations to document the validity of the proposal. All data and 
calculations will be based upon the current edition of the ASHRAE 
Handbook of Fundamentals or other universally accepted data sources.

    1. Overall ``U'' values for enveloped components. The following 
requirements shall be used in determining acceptable options to the 
requirements of paragraphs IV A and IV B of this exhibit.
    a. Uo (gross wall)--Total exterior wall area (opaque wall and window 
and door) shall have a combined thermal transmittance value (Uo value) 
not to exceed the values shown in attachment 1 to this exhibit D 
(available in any FmHA or its successor agency under Public Law 103-354 
office). Equation 1 in attachment 1 shall be used to determine 
acceptable combinations to meet the requirements.
    b. Uo (gross ceiling)--Total ceiling area (opaque ceiling and 
skylights) shall have a combined thermal transmittance value (Uo value) 
not to exceed the values shown in attachment 2 to this exhibit D 
(available in any FmHA or its successor agency under

[[Page 133]]

Public Law 103-354 office). Equation 2 in attachment 2 shall be used to 
determine acceptable combinations to meet the requirements.
    2. Overall structure performance. The following requirements shall 
be used in determining acceptable options to the requirements of 
paragraphs IV A and B of this exhibit.
    a. The methodology must be cost effective to the energy user, and 
must not adversely affect the structural capacity, durability or safety 
aspects of the structure.
    b. All data and calculations must show valid performance comparisons 
between the proposed option and a structure comparable in size, 
configuration, orientation and occupant usage designed in accordance 
with paragraphs IV A or B. Structures may be considered for FmHA or its 
successor agency under Public Law 103-354 loan consideration which can 
be shown by accepted engineering practice to have energy consumption 
equal to or less than those which would be attained in a representative 
structure utilizing the requirements of paragraphs IV A or B.
    3. Special consideration for seasonally occupied farm labor housing. 
The following sets forth the minimum acceptable options to the 
requirements of paragraphs IV A or B of this exhibit for seasonally 
occupied housing serving as security for farm labor housing loans and 
grants.
    a. When the period of occupancy does not encounter 500 or more 
heating degree-days (HDD) as determined by an average of the previous 10 
years based upon local climatological data published by the National 
Oceanic and Atmospheric Administration, Environmental Data Service, the 
standards of paragraphs IV A or B will not apply.
    b. When the period of use exceeds 500 HDD, the 10-year average value 
for the period of occupancy shall be used to determine the degree to 
which the thermal insulation requirements of paragraphs IV A or B shall 
apply.
    c. If mechanical cooling is provided and the period of occupancy 
encounters more than 700 cooling degree-days (CDD), as determined by an 
average of the previous 8 years based upon local climatological data 
published by the same source cited in paragraph IV C3a above, the 
thermal insulation requirements for 1,000 and less degree-days as stated 
in paragraph IV A or B shall apply.
    D. Energy efficient construction practices. This section prescribes 
those items of design and quality control which are necessary to 
guarantee the energy efficiency of homes built according to the 
standards of this exhibit. Also included are recommendations for extra 
energy efficiency in dwellings. This section does not apply to new SFH 
construction.
    1. Infiltration. a. Requirements: All construction shall be 
performed in such a manner as to provide a building envelope free of 
excessive infiltration.
    (i) Caulking and sealants. Exterior joints around windows and door 
frames, between wall cavities and window or door frames, between wall 
and foundation, between wall and roof, between wall panels, at 
penetrations of utility services through walls, floors and roofs, and 
all other openings in the exterior envelope shall be caulked, gasketed, 
weatherstripped, or otherwise sealed. Caulking shall be silicone rubber 
base or butyl rubber base, conforming to Federal Specifications TT-S-
1543 and TT-S-1657 respectively, or materials demonstrating equivalent 
performance in resilience and durability.
    (ii) Windows shall comply with ANSI 134.1, NWMA 15-2; the air 
infiltration rate shall not exceed 0.5 ft 3/min per ft. of sash crack.
    (iii) Sliding glass doors shall comply with ANSI 134.2, NWM 15-3; 
the air infiltration rate shall not exceed .5 ft 3/min per square ft. of 
door area.
    (iv) All insulation placed in open cavity walls shall be installed 
so that all space behind electrical switches and receptacles, plumbing, 
ductwork and other obstructions in the cavity are insulated as 
completely as possible. Insulation shall be omitted on the side facing 
the conditioned area; however, the vapor barrier in walls must not be 
cut or destroyed.
    b. Recommendations: (i) Wrap outside corners of wall sheathing with 
15 lb. asphalt impregnated building felt before siding application.
    (ii) Utilize vestibules for entry doors, especially those facing 
into the direction of winter wind.
    (iii) Install plumbing, mechanical and electrical components in 
interior partitions as much as possible. All water piping should be 
insulated from freezing temperatures.
    2. Heating and/or Cooling Equipment. a. Requirements: All mechanical 
equipment for heating and/or cooling habitable space shall be designed 
to provide economy of operations.
    (i) All space heating equipment (including fireplaces) requiring 
combustion air shall be sealed combustion types, or be located in a 
nonconditioned area (such as unheated basements) or adequate combustion 
air must be provided from outside the conditioned space.
    (ii) All ductwork shall be designed and installed to minimize 
leakage. All metal to metal connections shall be mechanically joined and 
taped.
    b. Recommendations: (i) Whenever possible, locate ductwork inside of 
conditioned areas in dropped ceilings, interior partitions or other 
similar areas.
    (ii) Locate outside cooling units in areas not subject to direct 
sunlight or heat buildup.

[[Page 134]]

    3. Vapor Barrier. a. Requirements: Adequate vapor barriers must be 
provided adjacent to the interior finish material of the wall or other 
closed envelope components which do not have ventilation space on the 
non-conditioned side of the insulation.
    (i) A vapor barrier at the inside of the wall or other closed 
envelope component must have a permeability (perm) rating less than that 
of any other material in the component and in no case have a perm rating 
greater than one. All vapor barriers must be sealed around all openings 
in the interior surface. Vapor barriers are not required in ceilings and 
floors. Continuous vapor barriers on ceilings, walls, and floors require 
adequate moisture vapor control in the conditioned space.
    (ii) All vapor producing or exhaust equipment shall be ducted to the 
outside and equipped with dampers. This equipment includes rangehoods, 
bathroom exhaust fans and clothes dryers. If a dwelling design proposes 
the use of windows to satisfy the kitchen and/or bathroom ventilation 
requirements of the development standards, the incorporation of 
dehumidification equipment should be considered in accordance with 
paragraph IV D 3 b. Exhaust of any equipment shall not terminate in an 
attic or crawl space.
    b. Recommendation: Forced air heating/cooling systems should include 
humidification/dehumidification systems where conditions indicate.
    E. [Reserved]
    F. New SFH construction. New SFH construction shall meet the 
requirements of CABO Model Energy Code, 1992 Edition (MEC-92).
    G. New manufactured housing.
    The Uo Value Zone indicated on the ``Heating Certificate'' for 
comfort heating shall be equal to or greater than the HUD Zone listed in 
the following table:

------------------------------------------------------------------------
                                                             FMHCSS (HUD
          RHS climate zones (winter degree days)              code) Uo
                                                             value zones
------------------------------------------------------------------------
0-1000....................................................            1
1001-2500.................................................            2
2501-4500.................................................            2
4501-6000.................................................            3
 6000..........................................            3
------------------------------------------------------------------------

    Example: If a manufactured home is to be located in a geographic 
area having between 2501 and 4500 RHS winter degree days, the Agency 
will accept a Uo value Zone 2 unit or Zone 3 unit constructed to the HUD 
FMHCSS.
    If a central air conditioning system is provided by the home 
manufacturer, a ``Comfort Cooling Certificate'' must be permanently 
affixed to an interior surface of the unit that is readily visible. This 
certificate may be combined with the heating certificate on the data 
plate.
    V. General Design Recommendations:
    A. Orient homes with greatest glass area facing south with adequate 
overhangs to control solar gain during non-heating periods. Examples of 
proper roof overhangs are given in attachment 3 to this exhibit D 
(available in any FmHA or its successor agency under Public Law 103-354 
office).
    B. Arrange plantings with evergreen wind buffers on north side and 
deciduous trees on south.
    C. Whenever possible, orient entry door away from winter winds.
    D. Design house with simple shape to minimize exterior wall area.
    E. Minimize glass areas within constraints of required light and 
ventilation, applicable safety codes and other appropriate 
consideration.
    F. Minimize the amount of paved surface adjacent to the structure 
where heat gain is not desirable.
    VI. State Supplements: State supplements or policies will not be 
issued or adopted to either supplement or set requirements different 
from those of this exhibit without the prior written approval of the 
National Office.

[52 FR 8002, Mar. 13, 1987, as amended at 54 FR 6874, Feb. 15, 1989; 59 
FR 43723, Aug. 25, 1994; 64 FR 48085, Sept. 2, 1999]

 Exhibit E to Subpart A of Part 1924--Voluntary National Model Building 
                                  Codes

    The following documents address the health and safety aspects of 
buildings and related structures and are voluntary national model 
building codes as defined in Sec.  1924.4(h)(2) of this subpart. Copies 
of these documents may be obtained as indicated below:

----------------------------------------------------------------------------------------------------------------
        Building code                Plumbing code              Mechanical code             Electrical code
----------------------------------------------------------------------------------------------------------------
BOCA Basic/National Building  BOCA Basic/National         BOCA Basic/National         National Electrical Code
 Code \1\.                     Plumbing Code \1\.          Mechanical Code \1\.        \5\
Standard Building Code \2\..  Standard Plumbing Code \2\  Standard Mechanical Code    ..........................
                                                           \2\.
Uniform Building Code \3\...  Uniform Plumbing Code \3\.  Uniform Mechanical Code     ..........................
                                                           \3\.
CABO One and Two Family       ..........................  ..........................  ..........................
 Dwelling Code \4\.
----------------------------------------------------------------------------------------------------------------
\1\ Building Officials and Code Administrators International, Inc., 4051 West Flossmoor Road, Country Club
  Hills, Illinois 60477.
\2\ Southern Building Code Congress International, Inc., 900 Montclair Road, Birmingham, Alabama 35213-1206.
\3\ International Conference of Building Officials, 5360 South Workman Mill Road, Whittier, California 90601.
\4\ Council of American Building Officials, 5203 Leesburg Pike, Falls Church, Virginia 22041.
\5\ National Fire Protection Association, Batterymarch Park, Quincy, Massachusetts 02269.


[[Page 135]]

            Exhibit F to Subpart A of Part 1924--Payment Bond

KNOW ALL PERSONS BY
THESE PRESENTS: that
________________________________________________________________________
(Name of Contractor)
________________________________________________________________________
(Address of Contractor)
a ----------------,
(Corporation, Partnership or Individual)
hereinafter called
PRINCIPAL and
________________________________________________________________________
(Name of Surety)
hereinafter called SURETY, are held and firm
bound unto______________________________________________________________
________________________________________________________________________
(Name of Owner)
________________________________________________________________________
(Address of Owner)

hereinafter called OWNER and the United States of America acting through 
the Farmers Home Administration or its successor agency under Public Law 
103-354 hereinafter referred to as GOVERNMENT, and unto all persons, 
firms, and corporations who or which may furnish labor, or who furnish 
materials to perform as described under the contract and to their 
successors and assigns in the total aggregate penal sum of ------, ----
-- Dollars ($------) in lawful money of the United States, for the 
payment of which sum well and truly to be made, we bind ourselves, our 
heirs, executors, administrators, successors, and assigns, jointly and 
severally, firmly by these presents.

THE CONDITION OF THIS OBLIGATION is such that whereas, the PRINCIPAL 
entered into a certain contract with the OWNER, dated the ------ day of 
------19----, a copy of which is hereto attached and made a part hereof 
for the construction of:

________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

NOW, THEREFORE, if the PRINCIPAL shall promptly make payment to all 
persons, firms, and corporations furnishing materials for or performing 
labor in the prosecution of the WORK provided for in such contract, and 
any authorized extension or modification thereof, including all amounts 
due for materials, lubricants, oil, gasoline, coal and coke, repairs on 
machinery; equipment and tools, consumed or used in connection with the 
construction of such WORK, and for all labor cost incurred in such WORK 
including that by a SUBCONTRACTOR, and to any mechanic or materialman 
lienholder whether it acquires its lien by operation of State or Federal 
law; then this obligation shall be void, otherwise to remain in full 
force and effect.
    PROVIDED, that beneficiaries or claimants hereunder shall be limited 
to the SUBCONTRACTORS, and persons, firms, and corporations having a 
direct contract with the PRINCIPAL or its SUBCONTRACTORS.
    PROVIDED, FURTHER, that the said SURETY for value received hereby 
stipulates and agrees that no change, extension of time, alteration or 
addition to the terms of the contract or to the WORK to be performed 
thereunder or the SPECIFICATIONS accompanying the same shall in any way 
affect its obligation on this BOND, and it does hereby waive notice of 
any such change, extension of time, alteration or addition to the terms 
of this contract or to the WORK or to the SPECIFICATIONS.
    PROVIDED, FURTHER, that no suit or action shall be commenced 
hereunder by any claimant: (a) Unless claimant, other than one having a 
direct contract with the PRINCIPAL (or with the GOVERNMENT in the event 
the GOVERNMENT is performing the obligations of the OWNER), shall have 
given written notice to any two of the following: The PRINCIPAL, the 
OWNER, or the SURETY above named within ninety (90) days after such 
claimant did or performed the last of the work or labor, or furnished 
the last of the materials for which said claim is made, stating with 
substantial accuracy the amount claimed and the name of the party to 
whom the materials were furnished, or for whom the work or labor was 
done or performed. Such notice shall be served by mailing the same by 
register mail or certified mail, postage prepaid, in an envelope 
addressed to the PRINCIPAL, OWNER, or SURETY, at any place where an 
office is regularly maintained for the transaction of business, or 
served in any manner in which legal process may be served in the state 
in which the aforesaid project is located, save that such service need 
not be made by a public officer. (b) After the expiration of one (1) 
year following the date of which PRINCIPAL ceased work on said CONTRACT, 
it being understood, however, that if any limitation embodied in the 
BOND is prohibited by any law controlling the construction hereof, such 
limitation shall be deemed to be amended so as to be equal to the 
minimum period of limitation permitted by such law.
    PROVIDED, FURTHER, that it is expressly agreed that the BOND shall 
be deemed amended automatically and immediately, without formal and 
separate amendments hereto, upon amendment to the Contract not 
increasing the contract price more

[[Page 136]]

than 20 percent, so as to bind the PRINCIPAL and the SURETY to the full 
and faithful performance of the Contract as so amended. The term 
``Amendment'', wherever used in this BOND and whether referring to this 
BOND, the contract or the loan Documents shall include any alteration, 
addition, extension or modification of any character whatsoever.
    PROVIDED, FURTHER, that no final settlement between the OWNER or 
GOVERNMENT and the CONTRACTOR shall abridge the right of any benficiary 
hereunder, whose claim may be unsatisfied.
    IN WITNESS WHEREOF, this instrument is executed in [number] 
counterparts, each one of which shall be deemed an original, this the --
-- day of ------.
    ATTEST:
________________________________________________________________________

Principal
________________________________________________________________________
(Principal) Secretary

(SEAL)

By ------(s)
________________________________________________________________________
(Address)
________________________________________________________________________
Witness as to Principal
________________________________________________________________________
(Address)
________________________________________________________________________
Surety

ATTEST:
________________________________________________________________________
Witness as to Surety
________________________________________________________________________
(Address)
By______________________________________________________________________
 Attorney-in-Fact
________________________________________________________________________
(Address)

    Note. Date of BOND must not be prior to date of Contract.
    If CONTRACTOR is partnership, all partners should execute BOND.
    Important: Surety companies executing BONDS must appear on the 
Treasury Department's most current list (Circular 570 as amended) and be 
authorized to transact business in the state where the project is 
located.

          Exhibit G to Subpart A of Part 1924--Performance Bond

KNOW ALL PERSONS BY THESE
PRESENTS: that__________________________________________________________

________________________________________________________________________
(Name of Contractor)

________________________________________________________________________
(Address of Contractor)

________________________________________________________________________
 (Corportion, Partnership, or Individual)
hereinafter called PRINCIPAL, and

________________________________________________________________________
(Name of Surety)

________________________________________________________________________
(Address of Surety)

hereinafter called SURETY, are held and firmly bound unto
________________________________________________________________________

________________________________________________________________________
(Name of Owner)

________________________________________________________________________
(Address of Owner)

hereinafter called OWNER, and the United States of America acting 
through the Farmers Home Administration or its successor agency under 
Public Law 103-354 hereinafter referred to as the GOVERNMENT in the 
total aggregate penal sum of
________________________________________________________________________
Dollars ($------)

in lawful money of the United States, for the payment of which sum well 
and truly to be made, we bind ourselves, our heirs, executors, 
administrators, successors, and assigns, jointly and severally, firmly 
by these presents.
    THE CONDITION OF THIS OBLIGATION is such that whereas, the PRINCIPAL 
entered into a certain contract with the OWNER, dated the ---- day of --
---- 19 --, a copy of which is hereto attached and made a part hereof 
for the construction of:

________________________________________________________________________

________________________________________________________________________
    NOW, THEREFORE, if the PRINCIPAL shall well, truly and faithfully 
perform its duties, all the undertakings, covenants, terms, conditions, 
and agreements of said contract during the original term thereof, and 
any extensions thereof which may be granted by the OWNER, or GOVERNMENT, 
with or without notice to the SURETY and during the guaranty period and 
if the PRINCIPAL shall satisfy all claims and demands incurred under 
such contract, and shall fully indemnify and save harmless the OWNER and 
GOVERNMENT from all costs and damages which it may suffer by reason of 
failure to do so, and shall reimburse and repay the OWNER and GOVERNMENT 
all outlay and expense which the OWNER and GOVERNMENT may incur in 
making good any default, then this obligation shall be void, otherwise 
to remain in full force and effect.
    PROVIDED, FURTHER, that the liability of the PRINCIPAL AND SURETY 
hereunder to the GOVERNMENT shall be subject to the same limitations and 
defenses as may be available to them against a claim hereunder by the 
OWNER, provided, however, that the GOVERNMENT may, at its option, 
perform any obligations of the OWNER required by the contract.

[[Page 137]]

    PROVIDED, FURTHER, that the said SURETY, for value received hereby 
stipulates and agrees that no change, extension of time, alteration or 
addition to the terms of the contract or to WORK to be performed 
thereunder or the SPECIFICATIONS accompanying same shall in any way 
affect its obligation on this BOND, and it does hereby waive notice of 
any such change, extension of time, alteration or addition to the terms 
of the contract or to the WORK or to the SPECIFICATIONS.
    PROVIDED, FURTHER, that it is expressly agreed that the BOND shall 
be deemed amended automatically and immediately, without formal and 
separate amendments hereto, upon amendment to the Contract not 
increasing the contract price more than 20 percent, so as to bind the 
PRINCIPAL and the SURETY to the full and faithful performance of the 
CONTRACT as so amended. The term ``Amendment'', wherever used in this 
BOND, and whether referring to this BOND, the Contract or the Loan 
Documents shall include any alteration, addition, extension, or 
modification of any character whatsoever.
    PROVIDED, FURTHER, that no final settlement between the OWNER or 
GOVERNMENT and the PRINCIPAL shall abridge the right of the other 
beneficiary hereunder, whose claim may be unsatisfied. The OWNER and 
GOVERNMENT are the only beneficiaries hereunder.

    IN WITNESS WHEREOF, this instrument is executed in [Number] 
counterparts, each one of which shall be deemed an original, this the --
-- day of ------.

ATTEST:

Principal

________________________________________________________________________
(Principal) Secretary

(SEAL)

________________________________________________________________________

Witness as to Principal

________________________________________________________________________

(Address)

By ----------(s)

________________________________________________________________________

(Address)

________________________________________________________________________

________________________________________________________________________
Surety

ATTEST:

________________________________________________________________________
Witness as to Surety

________________________________________________________________________
(Address)
By______________________________________________________________________
 Attorney-in Fact
________________________________________________________________________
(Address)
________________________________________________________________________

________________________________________________________________________

  Exhibit H to Subpart A of Part 1924--Prohibition of Lead-Based Paints

                               I. Purpose

    This exhibit prescribes the methods to be used to comply with the 
requirements of the Lead-Based Paint Poisoning Prevention Act, Public 
Law 91-695, as amended, (42 U.S.C. 4801 et seq.) and the amendment to 
section 501 (3) of Public Law 91-695 (42 U.S.C. 4841 (3)) as amended by 
the National Consumer Health Information and Health Promotion Act of 
1976, Public Law 94-317.

                               II. Policy

    The Farmers Home Administration (FmHA) or its successor agency under 
Public Law 103-354 shall not permit the use of lead-based paint on 
applicable surfaces of any housing or buildings purchased, repaired, or 
rehabilitated for human habitation with financial assistance provided by 
this agency. Paints used on applicable surfaces shall not contain more 
than 0.06 percent lead by weight calculated as lead metal in the total 
nonvolatile content of liquid paints or in the dried film of paint 
already applied.

                            III. Definitions

    A. Housing and buildings mean any house, apartment, or structure 
intended for human habitation. This includes any institutional structure 
where persons reside, such as an orphanage, boarding school, dormitory, 
day care center or extended care facility, college housing, domestic or 
migratory labor housing, hospitals, group practice facilities, community 
facilities, and business or industrial facilities.
    B. Applicable surfaces means all interior surfaces, whether 
accessible or not, and those exterior surfaces which are readily 
accessible to children under 7 years of age, such as stairs, decks, 
porches, railings, windows, and doors.
    C. Lead-based paint means any paint containing more than .5 of 1 
percentum lead by weight, or with respect to paint manufactured after 
June 22, 1977, lead-based paint containing more than six one-hundredths 
of 1 percentum lead by weight.

                            IV. Requirements

    A. All new housing and buildings shall comply with paragraph II of 
this exhibit H.
    B. For all existing housing and buildings built after 1950, on which 
a loan is closed after July 19, 1978, FmHA or its successor agency under 
Public Law 103-354 requires that the applicant, borrower or tenant be 
notified of the potential hazard of lead-based

[[Page 138]]

paints, of the symptoms and treatment of lead poisoning, and of the 
importance and availability of maintenance and removal techniques for 
eliminating such hazards. This will be accomplished by providing each 
applicant, borrower and/or tenant with a copy of attachment 1 to this 
exhibit H, ``Lead-based Paint Hazards, Symptoms, Treatment and 
Techniques for Eliminating Hazards,'' available in any FmHA or its 
successor agency under Public Law 103-354 County Office. Copies of 
attachment 1 may be obtained by the County Supervisor from the Finance 
Office, 1520 Market Street, St. Louis, MO 63103.
    C. For all existing housing or buildings built before 1950 on which 
a loan is closed after July 19, 1978, FmHA or its successor agency under 
Public Law 103-354 requires that the applicant, borrower and/or tenant 
be notified as in paragraph IV B and a copy of attachment 2 to this 
exhibit H, ``Caution Note on Lead-Based Paint Hazard,'' available in any 
FmHA or its successor agency under Public Law 103-354 County Office, 
shall be delivered to the hands of the applicant, borrowers and/or 
tenant.
    D. For all property transfers and inventory property sales, 
attachments 1 and 2 to this Exhibit H (available in any FmHA or its 
successor agency under Public Law 103-354 office) shall be handed to the 
purchaser by the FmHA or its successor agency under Public Law 103-354 
representative.
    E. All inventory housing or buildings built before 1950 to be 
repaired, renovated, or rehabilitated shall have tests for lead content, 
and where found to be hazardous, shall have any interior lead-based 
paint removed entirely. Loose or cracked surfaces shall be cleaned down 
to the base surface before repainting with a paint containing not more 
than six one-hundredths of 1 percentum lead by weight in the total 
nonvolatile content of the paint or the equivalent measure of lead in 
the dried film of paint already applied or both. Contracting officers 
shall include the following provision prohibiting the use of lead-based 
paint in all contracts and subcontracts for construction or 
rehabilitation of housing or buildings:

                      Lead-Based Paint Prohibition

    No lead-based paint containing more than .5 of 1 percentum lead by 
weight (calculated as lead metal) in the total nonvolatile content of 
the paint, or the equivalent measure of lead in the dried film of paint 
already applied, or both, or with respect to paint manufactured after 
June 22, 1977, no lead-based paint containing more than .06 of 1 
percentum lead by weight (calculated as lead metal) in the total 
nonvolatile content of the paint, or the equivalent measure of lead in 
the dried film of paint already applied, or both, shall be used in the 
construction or rehabilitation of residential structures under this 
contract or any subsequent subcontractors.
    Authority: This amendment is made under provisions of 5 U.S.C. 301, 
40 U.S.C. 486 (c).
    Done at ------, -------- this ---- day of --------, 19--.
--------------------____________________________________________________
FmHA or its successor agency under Public Law 103-354 Representative

                               V. Summary

    Section 401 of the Lead-Based Paint Poisoning Prevention Act as 
amended by the National Consumer Health Information and Health Promotion 
Act of 1976, Pub. L. 94-317, provides a requirement that each federal 
agency issue regulations and to take such other steps necessary to 
prohibit the use of lead-based paint on all applicable surfaces in 
Federal and Federally-assisted construction or rehabilitation of 
residential structures. The Lead-Based Paint Poisoning Prevention Act, 
Pub. L. 91-695, January 13, 1971, provides for grants to units of 
general local government in any state for the purpose of detecting and 
treating incidents of lead-based paint poisoning. Title II of this Act 
also provides for grants to the same units to identify those areas of 
risk including testing to detect the presence of lead-based paint on 
surfaces of residential housing.

Exhibit I to Subpart A of Part 1924--Guidelines for Seasonal Farm Labor 
                                 Housing

                               Section 100

    General--This exhibit sets forth the guidelines and minimum 
standards for planning and construction of new Labor Housing (LH) that 
will be occupied on a seasonal basis. Rehabilitation LH projects will be 
in substantial conformance with these guidelines and standards. A 
``seasonal basis'' is defined as 6 months or less per year. Seasonal 
housing for the farmworker need not be convertible to year-round 
occupancy; however, the living units shall be designed for the intended 
type of tenant, the time of occupancy, the location, the specific site, 
and the planned method of operation. It is important that the design of 
the LH site and buildings will help to create a pleasing lifestyle which 
will promote human dignity and pride among its tenants.

                               Section 200

    Codes and Regulations--Compliance is required with National, state 
and local codes or regulations affecting design, construction, 
mechanical, electrical, fire prevention, sanitation, and site 
improvement.

[[Page 139]]

                               Section 300

                                Planning

    300-1 Complete architectural/engineering services in accordance with 
this subpart will be required if an LH grant is involved or the LH loan 
will involve more than four individual family units, or any number of 
group living units, or dormitory units accommodating 20 or more persons.
    300-2 Buildings and site design shall provide for a safe, secure, 
economical, healthful, and attractive living facility and environment 
suited to the needs of the domestic farm laborer and his/her family.
    300-3 At least 5 percent of the individual family units in a 
project, or one unit, whichever is greater, and all common use 
facilities will be accessible to or adaptable for physically handicapped 
persons. This requirement may be modified if a recipient/borrower shows, 
through a market survey acceptable to FmHA or its successor agency under 
Public Law 103-354, that a different percentage of accessible or 
adapatable units is more appropriate for a particular project and its 
service area.

                               Site Design

    301-1 General--The site design shall be arranged to utilize and 
preserve the favorable features and characteristics of the property and 
to avoid or minimize the potential harmful effect of unfavorable 
features. Particular attention is directed to Sec.  1944.164 (l), (m) 
and (n) of subpart D of part 1944 of this chapter with reference to 
compliance with subpart G of part 1940 of this chapter. Some of the 
features which must be considered are the topography, drainage, access, 
building orientation to sun and breezes; and advantageous features, such 
as vegetation, trees, good views, etc. or disadvantageous features, such 
as offensive odors, noxious plants, noise, dust, health hazards, etc.
    301-2 Drainage--Surface and subsurface drainage systems shall be 
provided in accordance with the applicable development standard and 
subpart C of part 1924 of this chapter.
    301-3 Water and Sewage Disposal--Water supply and sewage disposal 
installations shall comply with subpart C of part 1924 of this chapter, 
the applicable development standard and all governing state and local 
department of health requirements. Where environmentally and 
economically feasible, the LH facility shall connect to pubic water and 
waste disposal systems.
    301-4 Electrical--Adequate electrical service shall be provided for 
exterior and interior lighting and for the operation of equipment.
    301-5 Vehicular Access and Parking.
    301-5.1 Safe and convenient all-weather roads shall be provided to 
connect the site and its improvements to the off-site public road.
    301-5.2 All-weather drives and parking shall be provided for 
tenants, and for trucks and buses as needed within the site. Driveways, 
parking areas and walkway locations shall be in substantial conformance 
with the applicable development standard.
    301-6 Walks:
    301-6.1 Walks shall be provided for safe convenient access to all 
dwellings and for safe pedestrian circulation throughout the development 
between locations and facilities where major need for pedstrian access 
can be anticipated, such as laundry, parking to dwelling units, common 
dining rooms, etc.
    301-6.2 Walkways shall be hard surface, such a concrete, asphalt, or 
stablized gravel, and shall be adequately drained.
    301-7 Building Location:
    301-7.1 Side and rear yards and distances between buildings shall 
conform to the applicable development standard.
    301-8. Garbage and Refuse:
    301-8.1 Garbage and refuse containers for individual units are 
required and shall be stored on durable functional racks or shall be 
located in a central screened area with easily cleaned surfaces. Single 
containers for multiple units shall be screened and in locations 
designed to accommodate collection vehicle functions.
    301-9 Fencing:
    301-9.1 Fencing used in the site design for project privacy or 
building security shall be harmonious in appearance with other fences 
and surrounding facilities which fall within the same view.
    301-10 Outdoor living:
    301-10.1 All public areas where pedestrian use can be anticipated 
after sunset shall be adequately lighted for security purposes, such as 
walkways to common use facilities--laundry, dining halls, building 
entrances, parking areas, etc.
    301-11 Planting and Landscaping:
    301-11.1 Planting and lawns or ground covers shall be provided as 
required to protect the site from erosion, control dust, for active and 
passive recreation areas, and provide a pleasant environment.

                             Building Design

    302-1.1 Living Units Design:
    302-1.1 Individual Family Unit--One family or extended family to a 
unit which shall contain adequate space for living, dining, kitchen, 
bath and bedrooms. Multifamily type units are required whenever possible 
for economy of site and building construction.
    a. The minimum total net living unit size shall be 400 square feet. 
This size assumes occupancy of four persons. Units planned for 
additional occupants shall include an additional 60 square feet of 
living area per person.

[[Page 140]]

    b. A living/dining area shall be provided to accommodate a table and 
chairs with adequate dining and circulation space for the intended 
number of occupants. The living/dining area should be combined with the 
kitchen area.
    c. The kitchen shall contain a sink, cooking range and refrigerator. 
A minimum free countertop area of six square feet is required. A minimum 
of 40 square feet of shelf area is required.
    d. Each bathroom shall contain adequate space and circulation for a 
bathtub and/or shower, water closet and lavatory. Access to the bathroom 
shall not be through another bedroom in dwelling units containing more 
than one bedroom.
    e. Bedroom areas separate from living areas are required. The design 
of the unit shall provide a minimum of 50 square feet of sleeping area 
per intended occupant including storage. Housing for families with 
children shall have a separate bedroom or sleeping area for the adult 
couples. A two foot by two foot shelf with a two foot long clothes 
hanging rod is required for each occupant.
    302-1.2 Group Living Unit--A living unit designed for the occupancy 
of more than one family or for separate occupancy of male and/or female 
groups. Common bath spaces shall be contained in the same building. 
Group living units for families shall have separate bedrooms for each 
adult couple.
    a. The design of the unit shall provide for a minimum of 620 square 
feet of total net living area for eight persons and an additional 60 
square feet for each additional occupant. Additional area shall be 
planned for a second bathroom when anticipated occupancy will exceed 
eight persons, or if it will be occupied by persons of both sexes.
    b. The kitchen shall contain an adequate sink, cooking range, 
refrigerator, and space the size of which is commensurate with the needs 
of the group living unit. A minimum of free countertop area of eight 
square feet is required. A minimum of 50 square feet of shelf area is 
required.
    c. Refer to paragraph 302-1.1 b for living/dining requirements.
    d. Each bathroom shall contain adequate space and circulation for 
comfortable access to, and use of, fixtures which will include a bathtub 
and/or shower, water closet and lavatory. In no case shall minimum 
fixtures be less than that required per paragraph 302-1.3 c below.
    e. Refer to paragraph 301-1.1 e for bedroom requirements.
    302.1.3 Dormitory Living Unit--A building which provides common 
sleeping quarters for persons of the same sex and may or may not contain 
kitchen and/or dining facilities in the same building as the sleeping 
quarters.
    a. The design of areas for sleeping purposes, using single beds, 
shall provide for not less than 72 square feet per occupant including 
storage.
    b. The design of areas for sleeping purposes, using double bunk 
beds, shall provide for not less than 40 square feet per occupant. 
Triple bunk beds will not be allowed.
    c. The design of each dormitory building must include a water closet 
and a bathtub or shower for each 12 occupants, and a lavatory for each 8 
persons. Urinals may be substituted for men's water closets on the basis 
of one urinal for one water closet, up to maximum of one-third of the 
required water closets.
    d. Adequate kitchen and dining facilities must be provided which may 
be in the dormitory building or detached at a distance of not more than 
200 feet from the sleeping quarters. In either case, the space must 
contain adequate cooking ranges, refrigerators, sinks, countertop, food 
storage shelves, tables and chairs, and circulation space. These 
facilities will comply with the requirements of the ``Food Service 
Sanitation Ordinance and Code,'' part V of the ``Food Service Sanitation 
Manual,'' U.S. Public Health Service Publication 934 (1965).
    302-2 Other Facilities:
    302-2.1 General--Other facilities, authorized by subpart D of part 
1944 of this chapter, needed by farm workers may be provided in several 
ways: part of a living unit, located in the project, or, with the 
exception of laundry facilities, available nearby.
    302-2.2 Laundry Facilities--Laundry facilities shall be required on-
site. Drying yards shall be provided if dryer units are not provided. 
The design of washing facilities shall plan for a minimum rate of one 
washer for each 20 occupants. One drying unit may be provided for every 
two washers, if automatic dryers are customarily provided for rental 
housing in the community. Laundry facilities shall have adequate space 
for loading the units, circulation, and clothes folding.
    302-2.3 Office and Maintenance--An office and maintenance space 
shall be provided or available, commensurate with the number of living 
units served, and shall meet the criteria of the FmHA or its successor 
agency under Public Law 103-354 Manual of Acceptable Practices. If 
necessary, the maintenance space shall have sufficient area to 
accommodate furniture storage.
    302-2.4 Child Care Center--Where feasible, a child care center may 
be included to provide supervised activity and safety for children while 
the parents work. Supervisors and workers for such centers are sometimes 
enlisted on a volunteer basis and the cost borne by nonprofit 
associations or community organizations. Grants are sometimes available 
through Federal or state programs. Consequently, the design of the child 
care center should meet the requirements of those sources providing 
organizational personnel and/or financing.

[[Page 141]]

    302-2.5 Manager's Dwelling--If a manager's dwelling unit is to be 
provided as a part of the FmHA or its successor agency under Public Law 
103-354 loan or grant, it will meet these guidelines. However, if it is 
necessary to provide a year-round caretaker/manager dwelling unit with 
FmHA or its successor agency under Public Law 103-354 loan or grant 
funds, it will meet the applicable development standard.
    302-2.6 Recreation--Outdoor recreation space is required and shall 
be commensurate with the needs of the occupants. Active and passive 
recreation areas will be provided which may consist of outdoor sitting 
areas, playfields, tot lots and play equipment.

                          General Requirements

    303-1 Materials and Construction--All materials and their 
installation in a LH facility shall meet the applicable development 
standard. Any exceptions to these requirements for materials and their 
installation must be obtained with the approval of the FmHA or its 
successor agency under Public Law 103-354 National Office. Material 
should be selected that is durable and easily cleaned and maintained.
    303-2 Fire Protection--Fire protection and egress shall be provided 
to comply with the applicable development standard.
    303-3 Light, Ventilation, Screening--Natural light and ventilation 
requirements as specified in the applicable development standard shall 
be followed. Screening of all exterior openings is required.
    303-4 Ceiling Heights--Ceiling heights of habitable rooms shall be a 
minimum of seven feet six inches clear, and seven feet in halls or baths 
in dwelling units. Public rooms shall have a minimum of eight feet clear 
ceiling height. Sloping ceilings shall have at least seven feet six 
inches for \1/2\ the room with no portion less than five feet in height.
    303-5 Heating and Cooling--Heating and cooling and/or air 
circulation equipment shall be installed as needed for the comfort of 
the tenants, considering the climate and time of year the facility will 
be in operation. Maximum feasible use of passive solar heating and 
cooling techniques shall be required. All equipment installed will be in 
accordance with the applicable development standard to protect the 
health and safety of occupants.
    303-6 Plumbing--Plumbing materials and their installation shall meet 
the applicable development standard. Hot water will be required to all 
living units, baths, kitchens and laundry facilities.
    303-7 Insulation, Thermal Standards, Winterization--Insulation will 
be required where either heating or cooling is provided as per paragraph 
303-5 above or when climatic conditions dictate a need for insulation. 
Insulation Standards will comply with exhibit D, paragraph IV C 3, of 
this subpart, or the state insulation standards, whichever are the more 
stringent.
    303-8 Electrical--Electrical design, equipment and installation 
shall comply with the requirements of the latest edition of the National 
Electrical Code, and the applicable development standard for materials 
and their installation. Individual family units may be separately 
metered; other types of dwelling units may be separately metered as 
required.
    303-9 Security and Winterization--Adequate management and physical 
measures will be provided as necessary to protect the facility during 
off-season periods, including adequate heating and insulation as 
required.

[52 FR 8002, Mar. 13, 1987, as amended at 52 FR 19283, May 22, 1987; 58 
FR 38922, July 21, 1993]

  Exhibit J to Subpart A of Part 1924--Manufactured Home Sites, Rental 
     Projects and Subdivisions: Development, Installation and Set-Up

Part A--Introduction
Part B--Construction and Land Development
Part C--Drawings, Specifications, Contract Documents and Other 
          Documentation
Part D--Inspection of Development Work

                          Part A--Introduction

    I. Purpose and Scope. This exhibit describes and identifies 
acceptable site development, installation and set-up practices and 
concepts for manufactured homes. It is intended for FmHA or its 
successor agency under Public Law 103-354 field personnel, builders, 
developers, sponsors, and others participating in FmHA or its successor 
agency under Public Law 103-354 housing programs.
    This exhibit applies to all manufactured homes (except those 
referenced in exhibit B of this subpart) on scattered sites or in rental 
projects and subdivisions and covers the requirements for design and 
construction of manufactured home communities. FmHA or its successor 
agency under Public Law 103-354 may approve alternatives or substitutes 
if it finds the proposed design satisfactory for the proposed use, and 
if the materials, installation, device, arrangement, or method of work 
is at least equivalent to that prescribed in this exhibit considering 
quality, strength, effectiveness, durability, safety and protection of 
life and health.
    FmHA or its successor agency under Public Law 103-354 will require 
satisfactory evidence to be submitted to substantiate claims made 
regarding the use of any proposed alternative.
    II. Background. FmHA or its successor agency under Public Law 103-
354 has authority to make (1) section 502 Rural Housing (RH) loans with 
respect to manufactured homes and lots, and (2) section 515 Rural

[[Page 142]]

Rental Housing (RRH) loans with respect to manufactured home rental 
projects.
    The manufactured home must be constructed in conformance with the 
Federal Manufactured Home Construction and Safety Standard (FMHCSS) and 
be permanently attached to a site-built permanent foundation which meets 
or exceeds the Minimum Property Standards (MPS) for One- and Two-Family 
Dwellings or Model Building Codes acceptable to FmHA or its successor 
agency under Public Law 103-354. The manufactured home must be 
permanently attached to that foundation by anchoring devices adequate to 
resist all loads identified in the MPS. This includes resistance to 
ground movements, seismic shaking, potential shearing, overturning and 
uplift loads caused by wind. Note that anchoring straps or cables 
affixed to ground anchors other than footings will not meet these 
requirements.
    Subpart G of part 1940 of this chapter applies on scattered sites, 
in subdivisions and rental projects to the development, installation and 
set-up of manufactured homes. To determine the level of environmental 
analysis required for a particular application, each manufactured home 
or lot involved shall be considered as equivalent to one housing unit or 
lot as these terms are used in Sec. Sec.  1940.310-1940.312 as well as 
in any other sections of subpart G of part 1940 of this chapter. The 
implementation of FmHA or its successor agency under Public Law 103-354 
environmental policies and the consideration of important land use 
impacts are of particular relevance in the review of proposed 
manufactured home sites and in achieving the two purposes highlighted 
below. Because the development, installation and set-up of manufactured 
home communities, including scattered sites, rental projects, and 
subdivisions, differ in some requirements from conventional site and 
subdivision development, two of the purposes of this exhibit are to:
    A. Encourage economical and orderly development of such communities 
and nearby areas, and
    B. Promote the safety and health of residents of such communities.
    Therefore, this exhibit identifies those required standards and 
regulations and suggested guidelines for eliminating and preventing 
health and safety hazards and promoting the economical and orderly 
development and utilization of land for planning and development of 
manufactured home communities. The exhibit also provides the 
requirements for meeting the following:
    A. Resistance to Wind. Foundations and anchorages shall be designed 
to resist wind forces specified in American National Standards Institute 
(ANSI) A-58.1-1982 for the geographic area in which the manufactured 
home will be sited;
    B. Proper Installation. The manufacturer's installation instructions 
provided with each manufactured home shall contain instructions for at 
least one site-built foundation with interior and/or perimeter supports. 
FmHA or its successor agency under Public Law 103-354 field office 
personnel shall review to determine its adequacy as security for an FmHA 
or its successor agency under Public Law 103-354 loan only, the 
foundation design concept for compliance with this exhibit, the FmHA or 
its successor agency under Public Law 103-354/MPS and any Model Building 
Code acceptable to FmHA or its successor agency under Public Law 103-354 
in that particular geographic area; and
    C. Proper Foundation Design. Manufactured homes shall be installed 
on a foundation system which is designed and constructed to sustain, 
within allowable stress and settlement limitations, all applicable 
loads. Any foundation and anchorage system or method of construction to 
be used should be analyzed in accordance with well-established 
principles of mechanics and structural engineering.
    III. Definitions. For the purpose of this exhibit the following 
definitions apply:
    Accessory Building or Structure.
    A subordinate building or structure which is an addition to or 
supplements the facilities provided by a manufactured home.
    Anchoring Systems. An approved system for securing the manufactured 
home to the ground or foundation system that will, when properly 
designed and installed, resist overturning and lateral movement of the 
home from wind forces.
    Contiguous. Sharing a boundary, adjoining or adjacent. A lot or 
subdivision is considered to be contiguous to other lots or subdivisions 
if it is adjoining, touching or adjacent.
    Federal manufactured Home Construction and Safety Standards 
(FMHCSS). A 1976 federal standard, commonly known as the HUD Standard, 
for the construction, design and performance of a manufactured home 
which meets the needs of the public including the need for quality, 
durability and safety. Units conforming to the FMHCSS are certified by 
an affixed label that reads as follows:

    AS EVIDENCED BY THIS LABEL NO. -------- THE MANUFACTURER CERTIFIES 
TO THE BEST OF THE MANUFACTURER'S KNOWLEDGE AND BELIEF THAT THIS 
MANUFACTURED HOME HAS BEEN INSPECTED IN ACCORDANCE WITH THE REQUIREMENTS 
OF THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT AND IS CONSTRUCTED IN 
CONFORMANCE WITH THE FEDERAL MANUFACTURED HOME CONSTRUCTION AND SAFETY 
STANDARDS IN EFFECT ON THE DATE OF MANUFACTURE. SEE DATA PLATE.

    Manufactured Home. A structure which is built to the Federal 
Manufactured Home Construction and Safety Standards and

[[Page 143]]

FmHA or its successor agency under Public Law 103-354's thermal 
requirements. It is transportable in one or more sections, which in the 
traveling mode is ten body feet or more in width, and when erected on 
site is four hundred or more square feet, and which is built on a 
permanent foundation when connected to the required utilities. It is 
designed and constructed for permanent occupancy by a single family and 
contains permanent eating, cooking, sleeping and sanitary facilities. 
The plumbing, heating, and electrical systems are contained in the 
structure.
    Manufactured Home Community. A parcel or contiguous parcels of land 
which contains two or more manufactured home sites available to the 
general public for occupancy. Sites and units may be for rent, or sites 
may be sold for residential occupancy (as in a subdivision).
    Manufactured Home Rental Project. A parcel or multiple parcels of 
land which have been so designated and improved to contain manufactured 
homes with sites available for rent.
    Manufactured Home Site. A designated parcel of land in a 
manufactured home rental project, subdivision or scattered site designed 
for the accommodation of a unit and its accessory structures for the 
exclusive use of the occupants.
    Manufactured Home Subdivisions. Five or more contiguous (developed 
or undeveloped) lots, or building sites that meet the requirements of 
subpart C of part 1924 of this chapter.
    Permanent Perimeter Enclosure. A permanent perimeter structural 
system completely enclosing the space between the floor joist of the 
manufactured home and the ground. If separate from the foundation 
system, the permanent perimeter enclosure shall be secured to the 
perimeter of the manufactured home, properly ventilated and accessible 
and constructed of materials that conform to the FmHA or its successor 
agency under Public Law 103-354 adopted MPS requirements for 
foundations.
    Pier Support System. Consists of footings, piers, caps, leveling 
spacers, or approved prefabricated load bearing devices.
    Related Facilities. Any nonresidential structure or building used 
for rental housing related purposes.
    Site-Built Permanent Foundation System. A foundation system 
(consisting of a combination of footings, piers, caps and shims and 
anchoring devices or required structural connections) which is designed 
and constructed to support the unit and sustain, within allowable stress 
and settlement limitations, all applicable loads specified in ANSI 
A58.1-1982. All loads shall be transferred from the manufactured home to 
the earth at a depth below the established frost line without exceeding 
the safe bearing capacity of the supporting soil.
    Set-Up. The work performed and operations involved in the placement 
of a manufactured home on a foundation system, to include installation 
of accessories or appurtenances and anchoring devices, and when local 
regulations permit, connection of utilities, but excluding preparation 
of the site.
    IV. Compliance with Local Regulations. These requirements do not 
replace site development standards established by local law, ordinances, 
or regulations. Whenever such local standards contain more stringent 
provisions than any of the site development, installation and set-up 
minimums of FmHA or its successor agency under Public Law 103-354, the 
more stringent standards shall govern.
    V. Applicable Standards, Regulations and Manuals. A. Manufactured 
housing to be financed by FmHA or its successor agency under Public Law 
103-354 must comply with the following standards:
    1. Federal Manufactured Home Construction and Safety Standards, 24 
CFR part 3280, mandated by Congress under title VI of the Federal 
Housing and Community Development Act of 1974, except for Sec.  
3280.506, ``Heat Loss,'' of subpart F, ``Thermal Protection,'' to part 
3280.
    2. Foundation requirements of the Minimum Property Standards as 
adopted by FmHA or its successor agency under Public Law 103-354 or a 
Model Building Code acceptable to FmHA or its successor agency under 
Public Law 103-354.
    3. [Reserved]
    4. Uniform Federal Accessibility Standard (UFAS).
    5. ANSI A58.1-1982, Minimum Design Loads for Buildings and Other 
Structures.
    B. Manufactured housing to be financed by FmHA or its successor 
agency under Public Law 103-354 shall comply with all applicable FmHA or 
its successor agency under Public Law 103-354 regulations, including but 
not limited to the following:
    1. Subpart C of part 1924 of this chapter, ``Planning and Performing 
Development Work.''
    2. Subpart A of part 1924, exhibit D, ``Thermal Performance 
Construction Standards.''
    3. Subpart G of part 1940, ``Environmental Program.''
    4. 7 CFR part 3550, ``Direct Single Family Housing Loans and 
Grants.''
    5. Subpart E of part 1944, ``Rural Rental Housing Loan Policies, 
Procedures, and Authorizations.''
    The requirements of the above references have not been repeated in 
this exhibit. Those requirements contained above are either mandatory or 
minimums and every effort should be made by the applicant, builder-
developer or dealer-contractor to utilize higher standards, when 
appropriate.

[[Page 144]]

                Part B--Construction and Land Development

    I. General Acceptability Criteria. The following criteria apply to 
development on scattered sites, in subdivisions and in rental project 
communities.
    A. A manufactured home development including a site, rental project 
or subdivision shall be located on property designated for that use, 
where designations exist, by the local jurisdiction.
    B. Conditions of soil, ground water level, drainage, flooding and 
topography shall not create hazards to the property and health or safety 
of the residents.
    C. The finished grade elevation beneath the manufactured home or the 
first flood elevation of the habitable space, whichever is lower, shall 
be above the 100-year return frequency flood elevation. This requirement 
applies wherever manufactured homes may be installed, not just in 
locations designated by the National Flood Insurance Program as areas of 
special flood hazards. The use of fill to accomplish this is a last 
resort. However, as stated in Sec.  1940.304 of subpart G of part 1940 
of this chapter, it is FmHA or its successor agency under Public Law 
103-354's policy not to approve or fund any proposal in a 100-year 
floodplain area unless there is no practicable alternative to such a 
floodplain location.
    D. Essential service such as employment centers, shopping, schools, 
recreation areas, police and fire protection, and garbage and trash 
removal shall be convenient to the development and any site, community, 
or subdivision must meet the environmental and location requirements 
contained in subpart G of part 1940 of this chapter.
    E. Manufactured home sites, rental projects and subdivisions shall 
not be subject to any adverse influences of adjacent land uses. An 
adverse influence is considered as one that is out of the acceptable 
level or range of a recognizable standard or where no standard exists is 
considered a nuisance irrespective of a site being zoned for 
manufactured home use. Health, safety and aesthetic consequences of 
location shall be carefully assessed by inspection of the site prior to 
selection of development. Undesirable land uses sush as deteriorated 
residential or commercial areas and noxious industrial properties shall 
be avoided to ensure compatibility. Other undesirable elements such as 
heavily traveled highways, airport runways, railroad, or fire hazards 
and other areas subject to recognizably intolerable noise levels shall 
be avoided.
    F. The requirements for streets shall be those found in subpart C of 
part 1924 of this chapter.
    G. The site design and development shall be in accordance with sound 
engineering and architectural practices and shall provide for all 
utilities in a manner which allows adequate, economic, safe, energy 
efficient and dependable systems with sufficient easements for their 
required installation and maintenance.
    H. Utilities for each manufactured home site, rental housing project 
or subdivision shall be designed and installed in accordance with 
subpart C of part 1924 of this chapter; and the State health authority 
having jurisdiction, and all local laws and regulations requiring 
approval prior to construction.
    I. Exhibit C, section V of this subpart shall be complied with by 
the applicant, dealer-contractor or builder-developer for manufactured 
home projects with individual water supply and sewage disposal systems. 
This exhibit shall be used by the FmHA or its successor agency under 
Public Law 103-354 County Supervisors, District Directors, and State 
Directors in reviewing submissions.
    J. During the planning, design, and construction of the foundation 
system and/or perimeter enclosure, provisions shall be made for the 
installation and connection of on-site water, gas, electrical and sewer 
systems, which are necessary for the normal operation of the 
manufactured home. Water and sewer system hookups shall be adequately 
protected from freezing.
    II. Development on Scattered Sites and in Subdivisions.--A. General. 
Scattered sites and subdivision developments will be planned and 
constructed in accordance with specific requirements of this subpart, 
subpart C of part 1924, and subpart G of part 1940 of this chapter, and 
the applicable FmHA or its successor agency under Public Law 103-354/MPS 
or Model Building Codes acceptable to FmHA or its successor agency under 
Public Law 103-354. Manufactured homes for development in a manufactured 
home community shall:
    1. Be erected with or without a basement on a site-built permanent 
foundation that meets or exceeds applicable requirements of the FmHA or 
its successor agency under Public Law 103-354/MPS for One- and Two-
Family Dwellings or Model Building Codes acceptable to FmHA or its 
successor agency under Public Law 103-354;
    2. Be permanently attached to that foundation by anchoring devices 
adequate to resist all loads identified in the FmHA or its successor 
agency under Public Law 103-354 adopted MPS (this includes resistance to 
ground movements, seismic shaking, potential shearing, overturning and 
uplift loads caused by wind, etc.);
    3. Have had the towing hitch or running gear, which includes 
tongues, axles, brakes, wheels, lights and other parts of the chassis 
that operate only during transportation removed;
    4. Have any crawl space beneath the manufactured home properly 
ventilated and enclosed by a continuous permanent perimeter enclosure. 
If it is not the supporting foundation, designed to resist all forces to 
which it

[[Page 145]]

may be subject without transmitting to the building superstructure 
movements or any effects caused by frost heave, soil settlement 
(consolidation), or shrinking or swelling of expansive soils; and be 
constructed of materials that conform to FmHA or its successor agency 
under Public Law 103-354 adopted MPS requirements for foundations;
    5. Have the manufactured home insulated to meet the energy 
conserving requirements contained in exhibit D of this subpart;
    6. Have a manufactured home site, site improvements, and all other 
features of the mortgaged property not addressed by the Federal 
Manufactured Home Construction and Safety Standards, meet or exceed 
applicable requirements of this subpart and subpart C of part 1924 of 
this chapter, the FmHA or its successor agency under Public Law 103-354 
adopted MPS except paragraph 31-2.2 or a Model Building Code acceptable 
to FmHA or its successor agency under Public Law 103-354;
    7. Have had the manufactured unit itself braced and stiffened where 
necessary before it leaves the factory to eliminate racking and 
potential damage during transportation; and
    8. Be eligible for financing in accordance with the requirements of 
either section 502, or section 515 of FmHA or its successor agency under 
Public Law 103-354's Housing Program, for which purpose the beginning of 
construction will be the commencement of on-site work even though the 
manufactured home itself may have been produced and temporarily stored 
prior to the date of application for financing.
    B. Site Planning and Development. The site planning and development 
of manufactured home scattered sites and subdivisions shall also comply 
with the following:
    1. Arrangement of Structures and Facilities. The site, including the 
manufactured home, accessory structures, and all site improvements shall 
be harmoniously and efficiently organized in relation to topography, the 
shape of the plot, and the shape, size and position of the unit. 
Particular attention shall be paid to use, appearance and livability.
    2. Adaptation to Site Assets. The manufactured home shall be fitted 
to the terrain with a minimum disturbance of the land. Existing trees, 
rock formations, and other natural site features shall be preserved to 
the extent practical. Favorable views or outlooks shall be emphasized by 
the plan.
    3. Site Plan. The site plan shall provide for a desirable 
residential environment which is an asset to the community in which it 
is located.
    4. Lot Size. The size of manufactured home lots (scattered sites and 
subdivision) shall be determined by 7 CFR part 3550 and subpart C of 
part 1924 of this chapter.
    C. Foundation Systems, Anchoring and Set-up.
    1. The foundation system shall be constructed in accordance with 
this subpart and one of the following: (a) The foundation system 
included in the manufacturer's installation instructions meeting FmHA or 
its successor agency under Public Law 103-354/MPS requirements, (b) the 
FmHA or its successor agency under Public Law 103-354/MPS 4900.1, which 
specifies performance requirements for foundations in section 600 
``General'' and paragraph 601-16 ``Foundations,'' or (c) an FmHA or its 
successor agency under Public Law 103-354 recognized model building 
code.
    2. The manufactured home permanent foundation system shall 
constitute a permanent load bearing support system for the manufactured 
home. The manufacturer or applicant shall be permitted to design or 
specify the installation of a foundation system which meets FmHA or its 
successor agency under Public Law 103-354/MPS design requirements for 
foundations and the general requirements above.
    3. The applicant's responsibility for proper design and installation 
of the permanent foundation system, anchoring and set-up shall be in 
accordance with Sec.  1924.5(f)(1), of this subpart.
    4. The builder/developer of the manufactured home property, for 
proposed construction, shall submit with the application for financing 
by the applicant or for a conditional commitment design calculations, 
details and drawings for the installation, anchorage and construction of 
permanent foundation and perimeter enclosure to be used.
    III. Rental Housing Project Development. A. General. Manufactured 
housing rental developments shall be planned and constructed in 
accordance with requirements of subpart C of part 1924; this subpart; 
subpart G of part 1940, the FmHA or its successor agency under Public 
Law 103-354/MPS; and the requirements of subpart E of part 1944 of this 
chapter.
    B. Site Planning and Development. Site planning and development 
shall adapt to individual site conditions and the type of market to be 
served, reflect advances in site planning and development techniques, 
and be adaptable to the trends in design of the manufactured home. Site 
planning and development shall utilize existing terrain, trees, shrubs 
and rocks formations to the extent practicable. A regimental style site 
plan design should be avoided.
    C. Foundation Systems, Anchoring and Set-up. Foundation systems, 
anchoring and set/ups for manufactured home rental projects (site and 
home) developed under FmHA or its successor agency under Public Law 103-
354 section 515 Rural Rental Housing program shall comply with the 
requirements of paragraphs II A and II C above.

[[Page 146]]

    IV. Accessory Structures and Related Facilities. A. General. 
Accessory structures and related facilities are dependent upon the 
manufactured home and its environment.
    1. Accessory structures and related facilities shall be planned, 
designed and constructed in accordance with the applicable provisions of 
this subpart; the FmHA or its successor agency under Public Law 103-354/
MPS; and local criteria of the authority having jurisdiction.
    2. Accessory structures and related facilities shall be designed in 
a manner that will eliminate and prevent health and safety hazards and 
enhance the appearance of the manufactured home and its environment.
    3. Accessory structures and related facilities shall not obstruct 
required openings for light and ventilation of the manufactured home and 
shall not hamper installation and utility connections of the unit.
    B. Accessory Structures. 1. Accessory structures shall not include 
spaces for pantries, bath, toilet, laundries, closets or utility rooms.
    2. Accessory structures shall be carefully designed and constructed 
for the convenience and comfort of the manufactured home occupant. These 
features significantly affect the visual appearance of the community and 
influence livability.
    C. Related Facilities (Rental Housing Projects). 1. This includes 
those facilities as defined in Sec. Sec.  1944.205(i) and 1944.212(f) of 
subpart E of part 1944 of this chapter.
    1. This includes those facilities as defined in Sec.  1944.212(e) of 
subpart E of part 1944 of this chapter.
    2. Related facilities built on-site must meet the FmHA or its 
successor agency under Public Law 103-354/MPS and subpart A of part 1924 
of this chapter or other building codes approved by FmHA or its 
successor agency under Public Law 103-354.
    3. Workmanship shall be of a quality equal to good standard 
practice. Material shall be of such kind and quality as to assure 
reasonable durability and economy of maintenance, all commensurate with 
the class of building under consideration.
    4. All members and parts of the construction shall be properly 
designed to carry all loads imposed without detrimental effect on finish 
or covering materials.
    5. The structure shall be adequately braced against lateral stresses 
and each member shall be correctly fitted and connected.
    6. Adequate precautions shall be taken to protect against fire and 
accidents.
    7. All related facilities which require accessibility to the 
handicapped must comply with the Uniform Federal Accessibility Standard 
(UFAS).
    V. Fire Protection and Safety. A. The design of the site plan for 
each manufactured community and scattered site shall meet the fire 
protection and safety requirements of the local authority responsible 
for providing the necessary fire protection services.
    B. All fire detection and alarm systems, and water supply 
requirements for fire protection for manufactured communities shall be 
in accordance with the local authority responsible for providing the 
necessary fire protection services.
    C. Any portion of a manufactured home shall not be closer than the 
local separation requirements of the development standard for side to 
side, end to end, and end to side siting. If the exposed composite wall 
and roof of two or more manufactured homes are proposed to be joined 
they shall be without openings and constructed of materials which will 
provide a minmum one-hour fire rating each, or the manufactured homes 
are separated by a one-hour fire rated barrier designed and approved for 
such installation and permitted by the authority having jurisdiction.
    D. Manufactured homes shall not be positioned vertically (stacked) 
with one over the other in whole or in part without the specific 
approval of the authority having jurisdiction.

     Part C--Drawings, Specifications, Contract Documents and Other 
                              Documentation

    I. General. Adequate site development and foundation installation 
drawings and specfications shall be provided by the applicant or dealer-
contractor to FmHA or its successor agency under Public Law 103-354 to 
fully describe the construction and other development work. These 
documents shall be provided according to the requirements of Sec.  
1924.5(f)(1) of this subpart. Contract documents will be prepared in 
accordance with Sec.  1924.6 and, in the case of multiple family housing 
construction and development, Sec.  1924.13 of this subpart.
    A. The documents recommended shall be used as a guide for drawings 
and specifications to be submitted in support of all types of loan and/
or grant applications involving manufactured homes. Adequate and 
accurate drawings and specifications are necessary to:
    1. Determine the acceptability of the physical environment and 
improvements,
    2. Determine compliance with the applicable standards and codes,
    3. Review cost estimates, and
    4. Provide a basis for financing, inspections, and the warranty.
    B. Detailed floor plans, drawings and specifications are not 
required for any manufactured home to be installed on a scattered site, 
in a subdivision or rental housing project. However, a schematic floor 
plan should be submitted by the applicant when applying for FmHA or its 
successor agency under Public Law 103-354 financing. The unit must have 
an affixed label as specified in exhibit D of this subpart indicating 
that the

[[Page 147]]

unit is constructed to the FmHA or its successor agency under Public Law 
103-354 thermal requirements for the appropriate winter degree days. 
This will indicate that the manufacturer certifies that the unit has 
been properly inspected and it meets the FmHA or its successor agency 
under Public Law 103-354 Thermal Performance Construction Standard.
    C. For proposed construction, the builder or dealer-contractor shall 
submit with the loan or grant application design calculations, details 
and drawings for the installation, anchorage and construction of the 
permanent foundations and perimeter enclosure to be used. Drawings and 
specifications for foundation systems will be reviewed and examined by 
either the FmHA or its successor agency under Public Law 103-354 County 
Supervisor, District Director, or State Architect/Engineer for 
foundation support locations, loads and connection requirements 
specified by the manufacturer as a basis for evaluating foundation 
compliance with the FmHA or its successor agency under Public Law 103-
354/MPS or Model Building Code, and for determining design suitability 
for soil conditions. Drawings and specifications will also be examined 
by FmHA or its successor agency under Public Law 103-354 to determine 
compliance with all other on-site features not covered by the FMHCSS.
    D. Foundation design sections and details of all critical 
construction points systems, anchorage methods, and structural items 
shall be scaled as necessary to provide all appropriate information 1:30 
(3/8''=1'-0'') minimum.
    II. Scattered Sites. Drawings for single family manufactured housing 
shall be submitted by the applicant in addition to the requirements of 
paragraph I above and the requirements of paragraphs II A and D-7 of 
exhibit C of this subpart.
    III. Subdivisions. Subpart C of part 1924 of this chapter will be 
used in preparing and providing supporting documents.
    IV. Rental Housing Projects. Subpart C of part 1924 of this chapter 
will be used in preparing and providing supporting documents.
    V. Specifications. A. Form FmHA or its successor agency under Public 
Law 103-354 424-2, ``Description of Materials,'' or other acceptable and 
comparable descriptions of all materials used for site development, 
foundation installation and the permanent perimeter enclosure shall be 
submitted with the drawings by the applicant.
    B. The material identification information shall be in sufficient 
detail to fully describe the material, size and grade. Where necessary, 
additional sheets shall be attached as well as manufacturer's 
specification sheets for equipment and/or special materials.

                 Part D--Inspection of Development Work

    I. General. The following policies will govern the inspection of all 
manufactured housing development work. This includes scattered sites, 
subdivisions, rental housing projects and all accessory structures and 
related facilities unless otherwise indicated.
    II. Inspections. A. The responsibility for frequency and propose of 
inspections shall be in accordance with Sec.  1924.9(b) (1), (2) and (3) 
of this subpart. The inspection requirements of Sec.  1924.13 apply to 
the planning and conduct of construction work on all 515 housing 
developments that are more extensive in scope and more complex in nature 
than those involving an individual manufactured housing unit. The Stage 
2 inspection customary for site-built housing when the building is 
enclosed is not required for manufactured homes.
    The Stage 2 inspection for manufactured homes will be made within 
two working days after erection or placement on the foundation to 
determine compliance with accepted installation drawings and 
specifications for installation and set-up and to verify that the 
correct unit is on the site.
    Stages 2 and 3 inspections for manufactured homes may be combined 
when authorized by the State Director.
    B. The borrower will join the County Supervisor or the District 
Director in making periodic inspections as often as possible and always 
for the final inspection.
    C. The borrower should be encouraged to make enough periodic visits 
to the site to be familiar with the progress and performance of the work 
in order to protect the borrower's interest. If the borrower observes or 
otherwise becomes aware of any fault or defect in the work or 
nonconformance with the contract documents, the borrower should give 
prompt written notice thereof to the dealer-contractor and a copy of the 
notice to the appropriate County Supervisor or District Director.
    D. During inspection, it will generally be infeasible to determine 
whether a manufactured unit erected on a site was properly braced and 
stiffened during transportation. Inspectors should examine these units 
to determine that there is no obvious damage or loosening of fastenings 
that may have occurred during transportation. The dealer-contractor must 
warrant these units against such damage, which should protect FmHA or 
its successor agency under Public Law 103-354's interest.
    III. Warranty Plan Coverage. The warranty requirements for all 
development work shall be in accordance with Sec.  1924.9(d) of this 
subpart and 7 CFR part 3550, subpart B.

[51 FR 41603, Nov. 18, 1986, as amended at 52 FR 19283, May 22, 1987; 53 
FR 2156, Jan. 26, 1988; 67 FR 78327, Dec. 24, 2002]

[[Page 148]]

 Exhibit K to Subpart A of Part 1924--Classifications for Multi-Family 
                     Residential Rehabilitation Work

                               I. General

    This exhibit distinguishes between what FmHA or its successor agency 
under Public Law 103-354 considers maintenance and repair work, moderate 
rehabilitation and substantial rehabilitation. In all cases, the 
building or project to be rehabilitated shall be structurally sound. The 
applicant shall have a structural analysis of the existing building made 
to determine the adequacy of all structural systems for the proposed 
rehabilitation.

                             II. Definitions

    Maintenance and Repair--Work involved in the selective replacement 
and general maintenance and repair of certain materials, appliances or 
components of an existing residential building.
    Moderate Rehabilitation--All work directly involved in the 
rearrangement of interior space, the replacement of finish materials or 
components of the electrical, plumbing, heating or conveyance systems of 
an existing multi-family residential building. Work and improvements are 
considered to be more than routine maintenance and repair.
    Substantial Rehabilitation--All work directly involved in the 
rearrangement of interior space that involves alteration of load bearing 
partitions and columns; the replacement of the electrical, plumbing, 
heating or conveyance systems; and the addition to and/or major 
conversion of existing multi-family residential buildings or other 
building structures.
    Moderate rehabilitation and repair shall not be limited to building 
changes for cosmetic or convenience purposes. In all cases moderate 
rehabilitation shall involve a minimum of three (3) components of 
building rehabilitation listed as moderate. Unless combined with other 
improvements in a project that are considered to be moderate or 
substantial rehabilitation the items identified as maintenance and 
repair are considered to be cosmetic and convenience changes.
    When a rehabilitation project consists of both moderate and 
substantial rehabilitation components, those substantial rehabilitation 
components shall be in accordance with FmHA or its successor agency 
under Public Law 103-354's development standards and local codes and 
regulation requirements. Where the majority of project components of 
building rehabilitation are considered substantial the project shall be 
considered in the substantial rehabilitation category.
    Those site components of rehabilitation such as landscaping, 
grading, drainage, fencing, parking areas, recreation areas, water and 
waste disposal systems, etc., whether considered either maintenance and 
repair, moderate rehabilitation or substantial rehabilitation shall be 
in accordance with FmHA or its successor agency under Public Law 103-
354's development standards for site development work; all local codes 
and regulation requirements; and sound engineering and architectural 
practices.
    Any alteration of a structure listed or eligible for listing on the 
National Register of Historic Places may be considered either moderate 
or substantial rehabilitation; however, it shall conform first to the 
Secretary of the Interior's Standards for Rehabilitation and Guidelines 
for Rehabilitating Historic Buildings and then to FmHA or its successor 
agency under Public Law 103-354's requirements. In cases where the 
Secretary of the Interior's standards cannot be met, rehabilitation will 
conform to the agreed upon approaches, treatments and techniques 
resulting from the consultation process between FmHA or its successor 
agency under Public Law 103-354, the borrower, the State Historic 
Preservation Officer and the Advisory Council of Historic Preservation.

         III. Components of Multi-Family Building Rehabilitation

    The components of multi-family building rehabilitation necessary and 
generally considered by FmHA or its successor agency under Public Law 
103-354 to be either maintenance and repair, moderate rehabilitation or 
substantial rehabilitation include but are not limited to those listed 
in the following chart.

                               Components of Multi-Family Building Rehabilitation
----------------------------------------------------------------------------------------------------------------
                                                                     Maintenance     Moderate       Substantial
                             Components                               and repair  rehabilitation  rehabilitation
----------------------------------------------------------------------------------------------------------------
Air conditioning...................................................           o   ..............  ..............
Appliance replacement or repair....................................           o   ..............  ..............
Cabinet replacement or repair......................................           o   ..............  ..............
Carpeting..........................................................           o   ..............  ..............
Caulking...........................................................           o   ..............  ..............
Ceiling framing....................................................           o   ..............  ..............
Clothes closets or shelving improvements...........................           o   ..............  ..............
Door repair........................................................           o   ..............  ..............
Drywall repair.....................................................           o   ..............  ..............
Gutters and downspouts.............................................           o   ..............  ..............
Hardware replacement or repair.....................................           o   ..............  ..............
Kitchen cabinet improvement........................................           o   ..............  ..............
Lighting fixture replacement or repair.............................           o   ..............  ..............
Mail boxes.........................................................           o   ..............  ..............
Painting...........................................................           o   ..............  ..............
Paneling...........................................................           o   ..............  ..............
Partition repair...................................................           o   ..............  ..............
Roof repair........................................................           o   ..............  ..............
Signage............................................................           o   ..............  ..............

[[Page 149]]

 
Stair repair.......................................................           o   ..............  ..............
Tile work..........................................................           o   ..............  ..............
Wallpapering.......................................................           o   ..............  ..............
Window shades and curtains.........................................           o   ..............  ..............
Door replacement...................................................  ...........             o    ..............
Drywall replacement................................................  ...........             o    ..............
Elevator components replacement....................................  ...........             o    ..............
Exterior entrance redesign, relocation.............................  ...........             o    ..............
Finish flooring materials..........................................  ...........             o    ..............
Flashing...........................................................  ...........             o    ..............
Furnace replacement................................................  ...........             o    ..............
Gas pipes..........................................................  ...........             o    ..............
Insulation.........................................................  ...........             o    ..............
Lath and plaster replacement.......................................  ...........             o    ..............
New shingles or roof replacement...................................  ...........             o    ..............
Partition (nonbearing) replacement, or relocation..................  ...........             o    ..............
Plumbing fixture replacement.......................................  ...........             o    ..............
Pointing...........................................................  ...........             o    ..............
Porch and steps alterator or replacement...........................  ...........             o    ..............
Stair replacement, or relocation...................................  ...........             o    ..............
Storm windows and weatherstripping.................................  ...........             o    ..............
Subfloor material replacement......................................  ...........             o    ..............
Trim--exterior and interior........................................  ...........             o    ..............
Window replacement.................................................  ...........             o    ..............
New or alteration to the:
    Mechanical system..............................................  ...........  ..............             o
    Soil pipes.....................................................  ...........  ..............             o
    Vent pipes.....................................................  ...........  ..............             o
    Waste pipes....................................................  ...........  ..............             o
Alteration or replacement of structural components:
    Beams..........................................................  ...........  ..............  ..............
    Chimneys and vents.............................................  ...........  ..............             o
    Columns and post...............................................  ...........  ..............             o
    Electrical service--replacement or new.........................  ...........  ..............             o
    Elevator replacement...........................................  ...........  ..............             o
    Exterior walls.................................................  ...........  ..............             o
    Floor construction.............................................  ...........  ..............             o
    Footing........................................................  ...........  ..............             o
    Foundation wall................................................  ...........  ..............             o
    Foundation waterproofing.......................................  ...........  ..............             o
    Interior walls.................................................  ...........  ..............             o
----------------------------------------------------------------------------------------------------------------

    Moderate repair and rehabilitation shall not be limited to building 
changes for cosmetic purposes. In all cases moderate rehabilitation 
shall involve a minimum of three (3) components of building 
rehabilitation listed as moderate. Unless combined with other 
improvements in a project that are considered to be moderate or 
substantial rehabilitation the items identified as maintenance and 
repair are considered to be cosmetic and convenience changes.

Exhibit L to Subpart A of Part 1924--Insured 10-Year Home Warranty Plan 
                              Requirements

                               I. Purpose

    In recent years, numerous third-party home warranty plans have been 
developed offering new homeowners varying degrees of protection against 
builder default and/or major structural defects in their homes. This 
exhibit establishes the criteria and procedures by which a warranty plan 
is found acceptable for new construction of single family homes financed 
by Farmers Home Administration (FmHA) or its successor agency under 
Public Law 103-354. An acceptable warranty plan will:
    A. Assure that FmHA or its successor agency under Public Law 103-354 
borrowers receive adequate warranty coverage,
    B. In certain circumstances, eliminate the requirement for FmHA or 
its successor agency under Public Law 103-354 personnel to make the 
first two construction inspections, and
    C. Permit a loan up to the market value of the security (less the 
unpaid principal balance and past due interest of any other liens 
against the security), even though FmHA or its successor agency under 
Public Law 103-354 personnel may not have performed period inspections 
during construction.

                     II. Types of Warranty Companies

    A. An insured warranty company is underwritten by an insurance 
carrier, licensed to operate as an insurer by the states where the 
warranty company plans to operate, and has an acceptable rating from a 
nationally recognized rating company such as A.M. Best Company.
    B. A risk retention group is an insurer which is licensed in one 
state and is authorized, under the Products Liability Risk Retention Act 
of 1981, to issue its policies in all states. This authority is not 
challenged by FmHA or its successor agency under Public Law 103-354; 
however, there remains some question as to the legal propriety of a 10-
year insured warranty insurer to be a risk-retention group. If at some 
future time any state insurance commission or regulatory agency 
challenges the legal authority of such group, FmHA or its successor 
agency under Public Law 103-354 will reconsider its acceptance of the 
group.
    C. Individual state warranty plans, such as that offered by the 
State of New Jersey, are

[[Page 150]]

backed by the full faith and credit of the state government.

                         III. Plan Requirements

    To be considered acceptable, a warranty plan must include the 
following features:
    A. The entire cost (fee, premium, etc.) of the coverage is prepaid 
and coverage automatically transfers to subsequent owners without 
additional cost.
    B. The coverage is not cancellable by the warrantor (builder), 
warranty company or insurer.
    C. The coverage age includes at least the following:
    (1) For one year from the effective date, any defects caused by 
faulty workmanship of defective materials.
    (2) During the second year after the effective date, the warranty 
continues to cover the wiring, piping and duct work of the electrical, 
plumbing, heating and cooling systems, plus the items in (3).
    (3) During the third through the tenth years, the warranty continues 
to cover major structural defects. A major structural defect is actual 
damage to the load-bearing portion of the home including damage due to 
subsidence, expansion or lateral movement of the soil (excluding 
movement caused by flood or earthquake) which affects its load-bearing 
function and which vitally effects or is imminently likely to affect use 
of the home for residential purposes.
    D. A system is provided for complaint (claims) handling which 
includes a conciliation and, if necessary to resolve matters in dispute, 
arbitration arranged by the American Arbitration Association or similar 
organization.
    E. A construction inspection plan is required if FmHA or its 
successor agency under Public Law 103-354 is to eliminate the first two 
FmHA or its successor agency under Public Law 103-354 inspections or 
permit a full market value loan when FmHA or its successor agency under 
Public Law 103-354 inspections are not conducted.

                       IV. Information for Review

    A. Companies submitting warranty plans for a determination of 
acceptability must support requests with the following information.
    (1) Evidence that the insured warranty company has met the 
applicable state licensing and/or regulatory requirements in the state 
in which the company plans to operate.
    (2) Evidence that the insurance carrier underwriting the warranty 
plan is licensed to operate as an insurer in the states in which the 
company plans to operate and has an acceptable rating from a nationally 
recognized company such as A.M. Best Company.
    (3) State warrenty plan agencies will provide evidence that the plan 
is backed by the full faith and credit of the state.
    (4) A full description of the warranty plan including information on 
the fees, builder and home registration procedures, required 
construction standards, construction inspection procedures, coverage 
provided and claims procedures.
    (5) A sample copy of the warranty information and/or policy which is 
provided to the homeowner.
    (6) Suggested means by which FmHA or its successor agency under 
Public Law 103-354 field offices can readily assure that the builder is 
a member in good standing prior to loan approval and that a warrant will 
be issued upon the completion of construction prior to the final release 
of funds.
    B. Submission and Acceptance:
    (1) Insured warranty companies, except those operating as risk 
retention groups, and state warranty plan agencies will submit their 
requests and supporting information to the FmHA or its successor agency 
under Public Law 103-354 State Director in the state in which they plan 
to operate. State Directors will determine the acceptability of insured 
warranty plans and state warranty plans in their jurisdictions, notify 
the company or agency of the decision in writing and notify field 
offices by issuance of a State Supplement including the names and 
addresses of acceptable warranty companies and any other pertinent 
information.
    (2) Warranty companies claiming authority as risk retention groups 
will submit their requests and supporting information including 
certification that it has complied with all requirements of the Products 
Liability Risk Retention Act of 1981 (Pub. L. 97-45) and information 
indicating the state in which it is licensed, information to the FmHA or 
its successor agency under Public Law 103-354 National Office, Single 
Family Housing Processing Division. The National Office will determine 
the acceptability of the warranty of a risk retention group, notify the 
company of the decision in writing and notify field offices by issuance 
of an attachment to this exhibit.

                         V. Warranty Performance

    A. County Supervisors will report inadequate warranty performance 
through their District Director to the State Director. State Directors 
will review the situation, assist in resolving any problems and, if 
necessary, initiate action under subpart F of part 1942 of this chapter. 
State Directors will inform, by memorandum, the Director, Single Family 
Housing Processing Division, National Office, of any problems with 
warranty performance and if any debarment action is initiated.
    B. State Directors will annually monitor each warranty company and/
or its insurer to

[[Page 151]]

assure continued compliance with state licensing and/or regulatory 
requirements.

               Attachment 1--Acceptable Warranty Companies

    The warranty companies listed below claim authority to act as a risk 
retention group under the Products Liability Risk Retention Act of 1981 
and as such, to operate in all States to provide 10-year home 
warranties. This authority remains subject to future challenges by any 
State insurance commissioner or regulatory agency; however, until such 
challenge is made, FmHA or its successor agency under Public Law 103-354 
accepts their warranty.

------------------------------------------------------------------------
             Name and address                     Area of operation
------------------------------------------------------------------------
Home Owners Warranty Corporation/HOW        All States.
 Insurance Company, 11 North Glebe Road,
 Arlington, Virginia 22201, (703) 516-4100.
Home Buyers Warranty, 89 Liberty Street,    All States.
 Asheville, North Carolina 22801,
 Telephone: (704) 254-4478.
Residential Warranty Corporation, P.O. Box  All States.
 641, Harrisburg, Pennsylvania 17108-0641,
 Telephone: 1-800-247-1812.
Manufactured Housing Warranty Corporation,  All States.
 P.O. Box 641, Harrisburg, Pennsylvania
 17108-0641, Telephone: 1-800-247-1812.
------------------------------------------------------------------------


[52 FR 8002, Mar. 13, 1987, as amended at 56 FR 29167, June 26, 1991]



   Subpart B_Management Advice to Individual Borrowers and Applicants

    Source: 53 FR 35679, Sept. 14, 1988, unless otherwise noted.



Sec.  1924.51  General.

    This subpart contains policies for providing management advice to 
all Farm Credit Programs direct loan applicants and borrowers. Forms and 
Farm Assessment and Supervision Reference handbooks are available in any 
Agency county office.

[61 FR 35922, July 9, 1996]



Sec. Sec.  1924.52-1924.53  [Reserved]



Sec.  1924.54  Definitions.

    As used in this subpart, the following definitions apply:
    Agency. This term refers to the Farm Service Agency, its county and 
State committees and their personnel, and any successor agency.
    Commercial classified. The Agency's highest quality Farm Credit 
programs accounts. The financial condition of the borrowers is strong 
enough to enable them to absorb the normal adversities of agricultural 
production and marketing. There is ample security for all loans, there 
is sufficient cash flow to meet the expenses of the agricultural 
enterprise and the financial needs of the family, and to service debts. 
The account is of such quality that commercial lenders would likely view 
the loans as a profitable investment.
    Farm Assessment and Supervision Reference. This reference provides 
guidance to field staff on conducting assessments, year-end analyses, 
and general borrower supervision.
    Farm business plan. The automated or manual Farm and Home Plan 
system which contains a projection that accurately reflects the 
borrower's plan of operation for the production or marketing cycle. The 
annual plan may cover a period of more or less than 12 months. A normal 
year's plan, as defined in this section, will be used when the annual 
plan does not reflect typical income, expenses, and debt payments. The 
Agency will accept farm business plans other than the Farm and Home Plan 
if they provide sufficient information to enable Agency officials to 
render a sound credit decision in accordance with Agency regulations.
    Farm Credit Programs loan. Includes Farm Ownership (FO), Soil and 
Water (SW), Operating (OL), Emergency (EM), Economic Emergency (EE), 
Recreation (RL), Special Livestock (SL), Economic Opportunity (EO) and 
Softwood Timber (ST) loans. Also included are Rural Housing loans for 
farm service buildings (RHF), and Rural Housing (RH) loans where the 
borrower is also indebted for an Agency direct farm loan that is not a 
collection only or judgment account. Non-Program loans, which are 
defined in Sec.  1951.451(a), are excluded.
    Individual. The term ``individual'' is used throughout this subpart 
to refer to the person receiving Agency supervision and management 
advice. If an applicant or borrower applies as an individual applicant, 
the term ``individual'' means the operator. In the case of an eligible 
corporation, cooperative,

[[Page 152]]

partnership, or joint operation, the term ``individual'' means the 
entity members with the primary responsibility for making management 
decisions and carrying out the day-to-day physical tasks.
    Normal year plan. A projected farm business plan most 
representative, or typical, of an operation's normal income, expenses 
(including family living expenses), and capital debt payments.
    Prospectus. Consists of a transmittal letter similar to FmHA Guide 
Letter 1951-F-3 with a current balance sheet and projected year's budget 
attached. The applicant or borrower name and address need not be 
withheld from the lender. The prospectus is used to determine lender 
interest in financing or refinancing specific direct loan applicants and 
borrowers. The prospectus will provide information regarding the 
availability of Agency loan guarantee and interest assistance.
    Standard classified. These loan accounts are fully acceptable by 
Agency standards. Loan risk and potential loan servicing costs are 
higher than would be acceptable to other lenders, but all loans are 
adequately secured. Repayment ability is adequate, and there is a high 
probability that all loans will be repaid as scheduled and in full.

[61 FR 35922, July 9, 1996, as amended at 68 FR 62223, Nov. 3, 2003]



Sec.  1924.55  Assessment of the agricultural operation.

    Assessments will be completed for direct Farm Credit Programs loan 
applicants. An assessment is a comprehensive evaluation of the 
components of an operation, the identification and prioritization of 
training and supervisory needs, and the resulting plan of supervision to 
assist the borrower in achieving financial viability. The assessment is 
the central foundation upon which to build strategies for planning, 
credit and management counseling, loan controls, analysis, borrower 
training, and all other needed supervision. An assessment will include 
thorough inspections of the operation and face-to-face meetings and 
discussions with all key individuals.
    (a) Agency evaluation. The Agency will assess each of the areas 
described in paragraph (b) of this section in close cooperation with the 
applicant or borrower. As part of that assessment, the Agency will 
determine whether the proposed budget is feasible on a direct or 
guaranteed loan basis, the type and nature of any material financial or 
production management weaknesses in the operation, and the specific 
strategy needed, including timeframes, to effect improvements and 
control risks. Material weaknesses are those that have a significant 
impact on the net income of the operation and need to be corrected to 
enable the borrower to progress financially and eventually graduate from 
FSA farm credit programs. Examples of material weaknesses include, but 
are not limited to: lack of a farm recordkeeping system, obsolete or 
inadequate facilities, and use of outdated production practices. In the 
case of Youth loans, it is recognized that most of the component areas 
will be ``Not Applicable'' since there is no full-scale farming 
operation to consider.
    (b) The assessment is an evaluation, conducted with an applicant or 
borrower, of the following components:
    (1) Type of operation.
    (2) Goals.
    (3) Real estate, including facilities.
    (i) Location and size.
    (ii) Proposed and existing improvements.
    (iii) Presence of environmental hazards.
    (iv) Conservation practices and measures.
    (v) Adequacy and continued availability of real estate.
    (vi) External factors, such as urban encroachment and zoning 
changes.
    (4) Chattel property used in the operation.
    (5) Farm business organization and key personnel.
    (6) Historical financial data.
    (7) Projected budget.
    (8) Planned changes.
    (9) Ability to obtain guaranteed credit.
    (c) Supervision and training. Appropriate supervisory oversight and 
training recommendations will be developed based on the Agency's 
evaluation of the strengths and weaknesses of the operation in 
accordance with paragraphs (a) and (b) of this section and Sec.  
1924.59.

[[Page 153]]

    (d) Performing the year-end analysis. A year-end analysis is 
required for borrowers (except for Youth loans and loans flagged as 
having bankruptcy, foreclosure, or other action pending) the first year 
after an initial or subsequent loan, chattel subordination, or 
restructuring is received, borrowers who are financially distressed or 
delinquent, borrowers who have loans deferred, and borrowers who are 
receiving limited resource interest rates. All other borrowers 
(including flagged accounts) will receive a year-end analysis at the 
discretion and judgment of the Agency. However, at least every two 
years, the borrower will provide upon Agency request, a year-end balance 
sheet, actual financial performance, and a projected farm budget so that 
the borrower can be classified for graduation purposes in accordance 
with subpart F of part 1951. The year-end analysis should coincide with 
the borrower's farm budget planning period. The borrower will work with 
the Agency to:
    (1) Complete the year-end analysis, whenever possible, within the 
60-day period after completion of the borrower's business year or farm 
budget planning period.
    (2) Complete and review the ``actual'' columns on the farm business 
plan and Form FmHA 1962-1, ``Agreement for the Use of Proceeds/Release 
of Chattel Security,'' if applicable.
    (3) Develop a farm business plan for the next production cycle in 
accordance with Sec.  1924.56.
    (4) Reach agreement on key management issues. Any such agreements 
will be documented for the borrower case file and signed by the 
borrower.
    (e)
    (e) Annual review. For all borrowers, the assessment described under 
this section will be reviewed on at least an annual basis to monitor 
progress. A meeting must be scheduled as soon as practicable to 
determine corrective options if: the borrower is, or expects to be, 
delinquent; the borrower is experiencing difficulties; or other 
significant changes have occurred. The year-end analysis under this 
section may be treated as the required assessment review.

[61 FR 35922, July 9, 1996, as amended at 68 FR 7696, Feb. 18, 2003]



Sec.  1924.56  Farm business planning.

    The automated Farm and Home Plan system is the primary tool used by 
the Agency to evaluate loan feasibility and prospects for achieving 
financial viability. Other manual or automated business planning systems 
may be used with the consent of the Agency.
    (a) [Reserved]
    (b) Documentation and revision of plans. Individuals must submit a 
farm business plan to the Agency, upon request, for loan approval and 
servicing purposes. An individual may request the assistance of the 
Agency official, as needed, in completing the plan. Farm business plans 
will be based only on accurate, verifiable information. If the Agency 
official and the individual cannot reach agreement, on the farm business 
plan, then the Agency will make loan approval and servicing 
determinations based on the Agency's separate, revised farm business 
plan. The individual will have the right to appeal any resulting adverse 
decision.
    (1) Historical information will be used as a guide to evaluate the 
feasibility of projected farm business plans. Individuals must provide 
the Agency with their previous 5-year production history, if available. 
Positive and negative trends, mutually agreed upon changes and 
improvements, and current input prices, will be taken into consideration 
when arriving at reasonable projections.
    (i) For individuals with less than a 5-year history, actual 
production records from an operation to be taken over by the individual 
will be considered, whenever available.
    (ii) In the absence of the information listed in paragraph (b)(1)(i) 
of this section, other reliable data sources that may be used include: 
FSA Farm Programs (formerly Agriculture Stabilization and Conservation 
Service) actual yield records and county or State averages.
    (iii) This paragraph applies when an accurate projection cannot be 
made because the individual's production history in any or all of the 
previous 5

[[Page 154]]

years has been substantially affected by a disaster that has been 
declared by the President or designated by the Secretary of Agriculture. 
This paragraph also applies to those individuals who would have had a 
qualifying physical or production loss, as defined in Sec.  1945.154(a), 
from such a disaster, but who were not located in a designated or 
declared disaster area.
    (A) If the individual's disaster years yields are less than the 
county average yields, county average yields will be used for those 
years. If county average yields are not available, State average yields 
will be used.
    (B) In calculating a baseline average yield, the individual may 
exclude the production year with the lowest actual or county average 
yield, providing the individual's yields were affected by disasters 
during at least 2 of the 5 years.
    (2) Unit prices for agricultural commodities as published in the 
State supplement will generally be used. However, regional or county 
unit prices may be used when there are transportation costs or other 
significant factors that cause a difference in commodity prices within 
the State. Individuals who can provide reliable evidence that they will 
receive a premium price for a commodity will be allowed to use the 
higher price for farm planning. The determination of disaster years will 
be based on the 5-year history of disaster declarations or designations 
for all counties contained in the State supplement.
    (3) When the Agency official and individual revise the farm business 
plan, the plan will be signed and initialed by both parties. Form FmHA 
1962-1 (available in any Agency office) will be revised whenever 
significant changes occur during the year that will affect repayment 
ability. It is the individual's responsibility to notify the Agency of 
any necessary changes. If the changes would result in a major change in 
the operation, a completely new farm business plan must be developed. 
The individual and Agency official will initial and date revisions to 
the Form FmHA 1962-1.
    (4) If the borrower and Agency cannot reach an agreement on 
revisions to the farm plan and an adverse decision results, the borrower 
may appeal. During an appeal, the Agency will make releases of normal 
income security for essential family living and farm operating expenses 
in accordance with Sec.  1962.17. If the borrower refuses to execute 
Form FmHA 1962-1 as finally determined by the Agency after an appeal, 
the account will be serviced under Sec.  1962.18. If the borrower does 
not appeal, the planned releases documented on Form FmHA 1962-1 are 
binding.

[61 FR 35923, July 9, 1996]



Sec.  1924.57  [Reserved]



Sec.  1924.58  Recordkeeping.

    (a) All borrowers must have a recordkeeping system, which must be 
documented as part of the assessment under Sec.  1924.55.
    (b) The selected recordkeeping system must provide information 
similar to that contained in Forms FmHA 431-2, FmHA 432-1, ``Farm Family 
Record Book,'' and FmHA 432-2, ``Five Year Inventory Record.'' The 
recordkeeping system must enable borrowers to make informed management 
decisions and allow the Agency to render loan making and servicing 
decisions in accordance with Agency program regulations.
    (c) Borrowers must maintain accurate records and submit financial 
information to the Agency when required. Failure to do so will result in 
the borrower's ineligibility for future Agency financing and loan 
servicing and may result in acceleration and collection action.

[61 FR 35924, July 9, 1996]



Sec.  1924.59  Supervision.

    The Agency's supervision is based on the information and evaluation 
resulting from the assessment of the operation. The borrower is required 
to:
    (a) Cooperate with the Agency and comply with all supervisory 
agreements, farm plans, and all other loan-related requirements.
    (b) Promptly notify the Agency of any significant change in the 
business or family expenses or the development of problem situations.
    (c) Maintain and protect the collateral for Agency loans and 
promptly report to the Agency any losses or other significant changes in 
the collateral.

[[Page 155]]

    (d) Complete any training required by Sec.  1924.74.

[61 FR 35924, July 9, 1996]



Sec.  1924.60  Nonfarm enterprises.

    A nonfarm enterprise is any business enterprise which supplements 
farm income by providing goods or services for which there is a need and 
a reasonably reliable market. The same general policies covered in this 
subpart for giving management assistance to an applicant or borrower on 
farm loans will be followed in dealing with an applicant or borrower on 
nonfarm enterprise loans. The appropriate plans and record book will be 
used for the nonfarm enterprise. The borrower responsibilities in Sec.  
1924.59(a) also apply to nonfarm enterprises.

[61 FR 35924, July 9, 1996]



Sec. Sec.  1924.61-1924.73  [Reserved]



Sec.  1924.74  Borrower Training program.

    (a) Introduction. (1) Supervised credit includes helping borrowers 
to develop the skills necessary for successful, efficient production and 
financial management of a farm business. An effective, formal training 
program provides a solid foundation on which borrowers can build the 
skills which will enable them to become efficient, financially sound 
producers who can obtain commercial financing. The goal of this training 
is for borrowers to develop and improve the financial and production 
management skills necessary to successfully operate a farm, build equity 
in the farm business, and become financially successful to graduate from 
Agency programs to commercial sources of credit.
    (2) The authorities contained in this section require certain Farm 
Credit Programs borrowers to obtain training in production and financial 
management concepts. Unless waived, this training requirement will be an 
eligibility requirement for all Agency direct loans. The training 
requirement will also apply to all direct borrowers who receive Primary 
Loan Servicing actions approved under subpart S of part 1951 of this 
chapter, with the exception of net recovery buyout offers. Borrowers who 
do not request new loans or servicing actions will be notified during 
farm visits and annual analyses of approved courses in their area. Also, 
a current list of approved courses will be posted in the County Office.
    (3) The training will be carried out by public and/or private sector 
providers of farm management and credit counseling services (including, 
but not limited to, community colleges, the Extension Service, State 
Departments of Agriculture, farm management firms, lenders, and similar 
qualified organizations).
    (4) State Directors will enter into agreements with one or more 
qualified providers in each State to conduct the training.
    (b) Processing--(1) Agency review. The determination of an 
applicant/borrower's need for enhanced training in production and 
financial management concepts will be made by the Agency. To make this 
determination, the Agency will review the case file (in the case of 
borrowers) and the complete application package for the assistance 
requested. A decision that the applicant/borrower needs such training 
cannot be used as a basis for rejecting the request for assistance. In 
the case of a cooperative, corporation, partnership, joint operation, 
trust, or limited liability company, any individual member holding a 
majority interest in the entity or who is operating the farm must agree 
to complete the training on behalf of the entity. However, if one entity 
member is solely responsible for financial or production management, 
then only that entity member will be required to complete the training 
in that area for the entity or qualify for a partial waiver. If the 
financial and production functions of the farming operation are shared, 
the knowledge and skills of the individual(s) with the responsibility of 
production and/or financial management of the operation will be 
considered in the aggregate for granting a waiver or requiring that 
training be completed. If a waiver is not granted, these individuals 
will be required to complete the training in accordance with their 
responsibilities for production and/or financial management. This 
training must be completed within 2 years after ``Agreement to Complete

[[Page 156]]

Training,'' is signed if a waiver is not granted. When production 
training is required, a borrower must complete course work covering 
production management in crop or livestock enterprises which constitute 
twenty percent of the projected cash farm income for the coming 
production cycle, as determined by the Agency. Borrowers who are adding 
a new enterprise must agree to complete any required production training 
in that enterprise unless a waiver is granted by the Agency. Borrowers 
must also complete financial management training unless a waiver has 
been granted by the Agency.
    (i) Loan applicants. After the Agency has determined that the 
applicant meets all eligibility criteria for the type of assistance 
requested, the Agency will consider the applicant's need for enhanced 
training in production and financial management concepts. If the Agency 
determines the applicant is ineligible for assistance, the training 
requirement will not be considered.
    (ii) Requests for Primary Loan Servicing. Prior to Agency offer of 
any Primary Loan Servicing action, the Agency must determine whether the 
borrower must complete a training program or qualifies for a waiver. 
This determination should be made after a feasible plan has been 
developed using consolidation, rescheduling, reamortization, deferral, 
softwood timber, and/or writedown, but prior to Agency actual offer to 
restructure the borrower's accounts. This training requirement does not 
apply to those borrowers offered net recovery buyout or preservation 
loan servicing. If the borrower must complete a training program, fees 
will be included in the plan as an operating expense.
    (2) Waivers. Applicants for loans and Primary Loan Servicing 
programs may request a waiver from the training requirement by 
submitting Form FmHA 1924-27, ``Request for Waiver of Borrower Training 
Requirements,'' with the application for assistance. The waiver request 
must include the required documentation and records as specified in 
paragraphs (b)(2)(i) and (b)(2)(ii) of this section. A waiver is not 
required for those applicants who have previously received a waiver, or 
who have previously satisfied the training requirements. The applicant/
borrower must meet all training requirements for both production and 
financial management if no waiver is granted. If the borrower receives a 
waiver for production training, the requirements for financial 
management training must still be met. Conversely, if the borrower 
receives a waiver for financial management training, the requirements 
for production training must still be met. In the case of entity 
applicants, only those entity members who hold a majority interest in 
the operation or who operate the farm must meet the waiver conditions 
for the entity to qualify for a waiver. However, if one entity member is 
solely responsible for financial or production management, then only 
that entity member will be required to complete the training in that 
area for the entity or qualify for a partial waiver. If the financial 
and production functions of the farming operation are shared, the 
knowledge and skills of the individual(s) with the responsibility of 
production and/or financial management of the operation will be 
considered in the aggregate for granting a waiver or requiring that 
training be completed. If a waiver is not granted, these individuals 
will be required to complete the training in accordance with their 
responsibilities for production and/or financial management. The Agency 
may waive the financial and/or production training requirements under 
the following conditions:
    (i) The applicant has successfully completed an equivalent training 
program. To meet this requirement, the applicant must submit evidence of 
completion of a production and/or financial management course similar to 
a course approved under this section. The submission must include a 
description of the content and subjects covered in the course(s) 
completed by the applicant or entity members. The submission must also 
include evidence of completion, such as a grade report, certificate of 
completion, or written certification by the course instructor. The 
program must have covered subject areas in paragraph (d)(3)(iii) of this 
section. The Agency will review the documentation submitted by the 
applicant(s) for assistance to determine

[[Page 157]]

whether the training completed satisfies the training requirements of 
this section; or
    (ii) The applicant has the experience and/or training which 
demonstrates the abilities necessary for successful, efficient 
production as determined by the Agency based on documentation provided 
by the applicant with the request for the waiver. This documentation 
must include, at a minimum, the applicant's production records for the 
past 5 years and a statement explaining how the records demonstrate 
production ability.
    (3) Notifying applicants/borrowers of the the Agency's decision 
regarding training. The applicant/borrower will be informed of the the 
Agency's decision as follows:
    (i) Loan applicants receiving a waiver from the training will be 
notified in the letter of eligibility, required under Sec.  1910.6 of 
subpart A of part 1910 of this chapter. Applicants for Primary Loan 
Servicing actions who are receiving a waiver will be notified through 
exhibit B or exhibit F to subpart S of part 1951 of this chapter, as 
appropriate.
    (ii) Loan applicants required to complete the training will be 
notified in the letter of eligibility. Applicants for Primary Loan 
Servicing actions who are required to complete the training will be 
notified through exhibit B or exhibit F to subpart S of part 1951 of 
this chapter, as appropriate. The notification will include the name(s) 
of the approved vendor(s) in the applicant/borrower's area and the 
specific courses required. The notification to the applicant/borrower 
will also include a description of the scoring system to be used to 
determine if the applicant/borrower has successfully met the training 
requirements. In both loan making and servicing cases, the decision to 
require certain training is not appealable. However, the decision is 
reviewable.
    (4) Notification of applicants determined ineligible for assistance. 
In the letter informing them of the Agency's decision, applicants 
determined ineligible for assistance due to lack of management training 
and experience will be notified, for their information, of training 
programs approved under this section. If the ineligible applicant 
chooses to enroll in a training program, eligibility for future 
assistance will not be automatic upon completion of the course. 
Applicants who complete an approved course and later apply for a new 
loan must still demonstrate that they possess sufficient training and 
experience to assure reasonable prospects of success and meet other 
eligibility requirements for the assistance requested.
    (5) Contacting vendor and payment. Upon receiving the notification 
of the training requirement, the borrower is responsible for selecting 
and contacting a vendor(s), and making all arrangements to begin the 
training. Agency is not a party to fee or other agreements between the 
borrower and the vendor. Training fees must be included in the plan of 
operation as a farm operating expense. Payment of training fees is an 
authorized use of operating loan funds.
    (6) Training agreement. Prior to closing the loan or Primary Loan 
Servicing action, the applicant/borrower must sign Form FmHA 1924-23. 
This agreement will be placed in position 2 of the borrower case file.
    (7) Automated tracking system. Field offices will process certain 
data to the automated Finance Office records in order to properly track 
borrower training-related information. Reference the automated system 
user manuals for more specific information on this automated tracking 
system.
    (8) County Office monitoring. Required training will be included in 
table C of Form FmHA 431-2. Agency personnel will monitor borrower 
progress during farm visits and analyses in accordance with this 
subpart. The County Supervisor will also contact the borrower to follow 
up on unsatisfactory training progress reports. All contacts with the 
borrower will be noted in the running case record, together with the 
topics discussed and agreements reached.
    (c) Vendor's evaluation of borrower progress--(1) All required 
training must be completed within 2 years after the borrower signs Form 
FmHA 1924-23. The County Supervisor may grant a 1-year written extension 
to the agreement in cases where the borrower demonstrates he/she was 
unable to complete the training due to circumstances beyond his/her 
control, such as poor

[[Page 158]]

health or discontinuance of the necessary approved courses. Refusal to 
grant a 1-year extension is not an appealable decision.
    (2) The vendor will provide Agency with periodic progress reports. 
The frequency of these reports will be determined by the State Director. 
These reports are not intended to reflect a grade or score, but to 
indicate whether the borrower is attending sessions and honestly 
endeavoring to complete the training program. Upon completion of the 
training, the vendor will provide the County Office with an evaluation 
of the borrower's knowledge of the course material. This evaluation 
shall specifically address the borrower's improvement toward meeting the 
goals outlined in this section. The instructor will also assign the 
borrower a score according to the following criteria:

                                  Score

    1. The borrower attended classroom sessions as agreed, 
satisfactorily completed all assignments, and demonstrated an 
understanding of the course material.
    2. The borrower attended classroom sessions as agreed and attempted 
to complete all assignments; however, the borrower does not demonstrate 
an understanding of the course material.
    3. The borrower did not attend classroom sessions as agreed and/or 
did not attempt to complete assignments. In general, the borrower did 
not make a good faith effort to complete the training.

    (i) Borrowers receiving a score of 1 will have met the requirements 
of the agreement. The accounts of these borrowers will be serviced in 
accordance with existing regulations.
    (ii) Borrowers receiving a score of 2 will have met the requirements 
of the agreement. However, since these borrowers do not adequately 
demonstrate an understanding of the course material, the County 
Supervisor will develop a plan outlining the additional supervision the 
borrower will require to accomplish the objectives of Agency assistance, 
such as recommending further training, more frequent farm visits, or 
retaining professional services of an accountant, farm management 
consultant, or similar expert based upon the borrower's abilities.
    (iii) Borrowers receiving a score of 3 will not have met the 
requirements of the agreement for training. Failure to complete the 
training as agreed will cause the borrower to be ineligible for future 
Agency benefits including future direct and guaranteed loans, Primary 
Loan Servicing, Interest Assistance renewals, and restructuring of 
guaranteed loans.
    (d) Selection and approval of organizations and courses--(1) 
Identification of potential vendors. Prior to the initial approval of 
vendors and prior to renewal of approved vendor's training agreements, 
the State Director or designee shall solicit applications from all 
interested organizations, keeping in mind its cultural diversity 
responsibilities. The State Director shall contact the Chief Executive 
Officer of the State and appropriate officials from the State Department 
of Agriculture, the State Extension Service, community colleges, and 
other private or nonprofit organizations which may be interested in 
conducting this training.
    (2) Application. The vendor must submit the following items prior to 
consideration for approval:
    (i) A sample of the course materials and a description of the 
method(s) of training to be used.
    (ii) Specific training objectives for each section of the course. 
These objectives should relate to the general objectives outlined in 
paragraph (d)(3)(i) of this section.
    (iii) A detailed course agenda specifying the topics to be covered, 
the time to be devoted to each topic, and the number of sessions to be 
attended.
    (iv) A list of instructors and their qualifications, and the 
criteria by which additional instructors will be selected.
    (v) The proposed locations where training will take place. These 
sites should be within a reasonable commuting distance for borrowers to 
be served by the vendor.
    (vi) Cost per participant and/or cost per organization, i.e., cost 
for husband/wife joint operation; father/son partnership; or multiple 
members of a corporation.
    (vii) Minimum and/or maximum class size.
    (viii) A description of the organization's experience in developing 
and administering training to farmers.

[[Page 159]]

    (ix) A description of the monitoring and/or quality control methods 
the organization intends to use.
    (x) A description of the policy on allowing Agency employees to 
attend the course for monitoring purposes, i.e., the number of employees 
authorized to attend; the cost (if any); and the number of classes each 
employee can attend.
    (xi) A description of how the needs of borrowers with physical and/
or mental handicaps or learning disabilities will be met.
    (xii) A plan of how the needs of borrowers for whom English is not 
their primary language will be met.
    (3) State Office review and recommendation. Upon receipt of the 
application packages from the potential vendors, the State Director will 
review the material to assure the vendor's proposal meets the following 
minimum criteria for accomplishment of educational objectives, 
instructor qualifications, curriculum content, and vendor qualification:
    (i) Educational objectives. Upon completion of the course, the 
borrower shall be able to:
    (A) Describe the specific goals of the business, describe what 
changes are required to attain the business goals, and outline how these 
changes will occur using present and projected enterprise budgets.
    (B) Maintain and utilize a financial management information system 
which includes financial and production records, a household budget, a 
statement of financial condition, and an accrual adjusted income 
statement. The borrower shall also be able to use this system when 
making financial and production decisions.
    (C) Understand and utilize an income statement. Specifically, the 
borrower must understand the structure and major components of an income 
statement and its role in analyzing the performance of a business, be 
familiar with the cash and accrual methods of determining net farm 
income, and understand the relationship between a balance sheet and an 
income statement.
    (D) Understand and utilize a balance sheet. Specifically, the 
borrower must understand the major components of a balance sheet and its 
role in analyzing the business, be familiar with the categories of 
assets and liabilities and be able to provide examples of entries under 
each, and be familiar with the cost and market methods of valuing assets 
and liabilities and the advantages of each method.
    (E) Understand and utilize a cash flow budget. Specifically, the 
applicant must be able to explain and justify estimates for production 
and expenses, and analyze the cash flow to identify potential problems.
    (F) Using production records and other production information, be 
able to identify problems, evaluate alternatives, and make needed 
corrections to current production practices to achieve greater 
efficiency and profitability.
    (ii) Instructor qualifications. Instructor qualifications will be 
reviewed to assure sufficient knowledge of the material and sufficient 
experience in adult education. The instructors must have a bachelor's 
degree or comparable experience in the subject area they will teach and 
a minimum of three years experience in conducting training courses or 
teaching. Also, the instructors must successfully complete any 
instructor training which may be associated with the Agency approved 
course.
    (iii) Curriculum. The curriculum shall be reviewed to assure that 
the following subject matter is sufficiently addressed. A single vendor 
is not required to provide all the courses necessary to cover the entire 
curriculum; however, to the extent practicable, all topics must be 
available for all Agency districts. The State Director shall identify 
the specific crop or livestock enterprises for which training must be 
available in a given area or district, and any additional subject matter 
to be covered for each.
    (A) Business Planning. The course(s) shall cover the general areas 
of goal setting, risk management, and planning. Goal setting will 
include identification of personal and family goals, business goals, and 
short- and long-term goals. Risk management concepts will include the 
sources, magnitude and frequency of risk, risk tolerance, risk-taking 
ability of the business, and

[[Page 160]]

strategies for managing risk such as use of credit, marketing, 
production practices, and insurance. Finally, the course(s) will guide 
the borrower through the formulation of a long-term business plan for 
the farm and presentation of this plan to a lender.
    (B) Financial Management Systems. The course(s) shall cover all 
aspects of farm accounting, specifically: Instruction in financial 
record keeping, preparation of a household budget, development and 
analysis of accrual adjusted income statements, balance sheets, and cash 
flow budgets. The course(s) shall focus on integrating these elements 
into a financial management system which enables the borrower to make 
business decisions based on his/her analysis of financial information.
    (C) Crop Production. The course(s) shall focus on improving the 
profitability of the borrower's crop enterprises. Specifically, the 
course shall address keeping and analyzing production records, 
identifying problems in current production practices, identifying 
sources of production information and assistance, and using production 
information to analyze alternatives and identify the most profitable 
solution.
    (D) Livestock Production. The course(s) shall focus on improving the 
profitability of the borrower's livestock enterprises. Specifically, the 
course shall address keeping and analyzing production records, 
identifying problems in current production practices, identifying 
sources of production information and assistance, and using production 
information to analyze alternatives and identify the most profitable 
solution.
    (iv) Vendor. The proposed vendor of the training must have 
demonstrated a minimum of three years experience in conducting training 
courses or teaching the proposed subject matter.
    (4) Approval. After review of the applications, the State Director 
shall determine which vendors should be recommended for final approval. 
Complete application packages from the selected vendors should be 
submitted to the National Office for concurrence prior to final 
approval. Applications from accredited colleges (including community 
colleges) or universities, however, do not require National Office 
concurrence prior to final approval. If all of the instructors have not 
been selected at the time of request for approval of the vendor, the 
vendor may be approved with the condition that instructors will meet the 
criteria set out in paragraph (d)(3)(ii) of this section. After 
approval, the State Director and the vendor(s) will sign Form FmHA 1924-
24, ``Agreement to Conduct Production and Financial Management Training 
for Farmers Home Administration or its successor agency under Public Law 
103-354 Borrowers.'' This agreement will be valid for three years, 
unless revoked in writing and giving 30 days notice by the State 
Director or the vendor. The State Director may revoke the agreement if 
the vendor does not comply with the responsibilities listed in the 
agreement. Such revocation is nonappealable. The State Director will 
issue a State supplement to this subpart listing the approved vendor(s), 
the contact person for the vendor, the terms of the vendor agreements, 
and the subject matter in which each vendor is approved to conduct 
training.
    (5) Renewals. Renewal of agreements to conduct training will not be 
automatic. The vendor must request renewal in writing, provide updates 
to any changes in curricula, and provide information which indicates the 
training provided by the vendor is effective. Such information may 
include course evaluations, test scores, or statistics on the 
improvement of borrowers who have completed the course. The State 
Director must obtain National Office concurrence on any decisions to 
deny renewal of a vendor's agreement. A decision to deny renewal of a 
vendor's agreement is nonappealable.
    (e) Vendor monitoring. An operational file will be maintained in the 
State Office for each approved vendor. This file will include the 
application, National Office concurrence (if required), the signed Form 
FmHA 1924-24, documentation of Agency monitoring of the vendor, and any 
further documentation to determine the success of the vendor's program. 
To assure the training organization is correctly and effectively 
implementing the training as

[[Page 161]]

proposed, the State Director or designee will be responsible for 
monitoring the vendor. This monitoring shall, as a minimum, consist of:
    (1) Attendance at selected training sessions for each vendor to 
verify that the agreed-upon subject matter is being covered in 
sufficient detail and to assess the effectiveness of the training 
provided by the instructors.
    (2) Review of course and instructor evaluations. Course and 
instructor evaluations will be completed by the borrowers on Form FmHA 
1924-22, ``Borrower Training Course Evaluation.'' This form will be 
provided to the borrowers by the instructor as they complete the course. 
The evaluations will be forwarded to the State Director for review. The 
results will be summarized and made part of the operational file on each 
vendor.
    (3) Monitoring of borrowers' improvement upon completion of a 
course. The State Director will analyze statistics regarding borrower 
performance, such as the graduation and delinquency of borrowers who 
have completed the required training course.

[58 FR 69195, Dec. 30, 1993, as amended at 61 FR 35924, July 9, 1996; 68 
FR 7696, Feb. 18, 2003; 68 FR 62223, Nov. 3, 2003]



Sec. Sec.  1924.75-1924.99  [Reserved]



Sec.  1924.100  OMB control number.

    The reporting and recordkeeping requirements contained in this 
regulation have been approved by the Office of Management and Budget 
(OMB) and have been assigned OMB control number 0560-0154.

[61 FR 35924, July 9, 1996]

   Exhibit A to Subpart B of Part 1924--Letter to Borrower Regarding 
Releases of Farm Income To Pay Family Living and Farm Operating Expenses

                 UNITED STATES DEPARTMENT OF AGRICULTURE

  Farmers Home Administration or its successor agency under Public Law 
                                 103-354

                            (Insert Address)

(Date)
Borrower's Name)
(Address)
    Dear ------:
    Public Law 100-233 requires the Agency to notify you that you are 
entitled to have Agency release proceeds from the sale of crops, 
livestock, and livestock products planned to be marketed in the regular 
course of business including ASCS and CCC payments, so that you can pay 
essential family living and farm operating expenses. The releases will 
continue until such time as your account should become in default and 
Agency has to accelerate your account.
    To provide these releases to you, Agency regulations require that 
you fill out Form FmHA 1962-1 to explain what items of Agency security 
you intend to sell during this crop year. Please see attachment 1 of 
this letter for an explanation of this form. We request that you contact 
this office within 10 days of when you receive this letter so that we 
can complete this form and you can receive releases on a timely basis.

    Sincerely,

________________________________________________________________________
County Supervisor

                        Attachment 1 to Exhibit A

    Periodically, you will be asked to complete Form FmHA 1962-1, 
``Agreement for the Use of Proceeds/Release of Chattel Security,'' which 
will document the agreement between you and the Agency as to how 
proceeds from the sale of chattel property which serves as security for 
your Agency loans will be released. You will also need to list those 
buyers to whom you plan to sell your farm products. This plan will give 
you and the Agency a clear idea of what income you expect from your 
operation and how those proceeds will be used. The plan will set forth 
the amount of money required for paying essential family living, farm 
operating expenses, and debt service payments. You and the Agency must 
agree on how much money will be released from your crop proceeds. Such 
releases must be in accordance with Agency regulations.
    If the County Supervisor is unable to agree with and approve your 
plan for the use of the sales proceeds, you will receive a letter 
explaining why the County Supervisor is unable to approve your plan and 
how you may appeal the County Supervisor's decision. While an appeal is 
pending, Agency will release sales proceeds to be used to pay essential 
family living and farm operation expenses.
    Once a plan has been agreed on, it is important that you abide by 
the plan. The plan can always be revised or changed, as circumstances 
require, provided you and Agency can agree to the revisions.
    Planned sales can be listed by month, by quarter or by whatever 
period suits your operation the best. The form does not have to be 
completed to show each individual animal, bushel, bale, etc. The form is 
a plan: it contains only projections. We expect your

[[Page 162]]

projections to be realistic and based on your past experience, but we 
know that you cannot predict exactly how many bushels per acre you will 
harvest, exactly how many animals you will wean, etc. We also realize 
that you cannot predict prices to the penny. Sometimes you will have a 
buyer for your products who is not listed on the form. All we expect of 
you is to be as accurate as you can. Later, if the plan needs to be 
changed, you and the County Supervisor can work together to revise it. 
Many revisions can be agreed on over the telephone and a trip to the 
County Office is not always needed. You are not required to check with 
Agency before making a sale just because the price you expected to 
receive is different from what you had planned to receive. However, a 
difference in price might require your plan to be revised, so Agency 
wants to be told about the difference as soon as possible after the sale 
is made. you are expected to obtain Agency approval before making a 
major change in your operation or before you use sale proceeds in a way 
different than you agreed to.
    If at all possible, you should let Agency know if you are going to 
sell to a buyer who is not listed on the form. The attached chart gives 
certain examples when you must get prior consent from the Agency and 
when you may advise Agency after the sales of your farm products.

 What To Do If You Want To Take Actions That Are Different Than What Is
                     Listed on Your Form FmHA 1962-1
------------------------------------------------------------------------
             Get prior consent                 Give notice afterwards
------------------------------------------------------------------------
 You Must Get Agency PRIOR CONSENT if You   You Can Take Action and Then
                 Want to:                         Give Agency Notice
                                              AFTERWARDS if You Want to:
1) Sell, exchange, consume, or otherwise    4) Dispose of your property
 dispose of property that is not listed on   at a time that is different
 your Form FmHA 1962-1;                      than what you listed in the
                                             ``MONTH'' section of your
                                             Form FmHA 1962-1;
2) Dispose of chattel security in a way     5) Sell (or exchange) your
 not listed in the ``HOW'' section of your   property to a person or
 Form FmHA 1962-1 (for example, feed corn    business that is not listed
 to livestock instead of selling it;         in the ``POTENTIAL
                                             PURCHASERS'' section of
                                             your Form FmHA 1962-1;
3) Use proceeds in a way not listed in the  6) Sell, exchange, consume,
 ``USE OF PROCEEDS'' section of your Form    or otherwise dispose of a
 FmHA 1962-1 (for example, use proceeds to   quantity of property that
 buy equipment instead of to pay debt).      is different than what you
                                             listed in the ``QUANTITY''
                                             section of your Form FmHA
                                             1962-1;
                                            7) Accept a price for your
                                             property that is different
                                             than what you listed in the
                                             ``AMOUNT OF PROCEEDS''
                                             section of your Form FmHA
                                             1962-1.
------------------------------------------------------------------------


[53 FR 35679, Sept. 14, 1988, as amended at 56 FR 15821, Apr. 18, 1991; 
61 FR 35924, July 9, 1996]



         Subpart C_Planning and Performing Site Development Work

    Source: 60 FR 24543, May 9, 1995, unless otherwise noted.

    Editorial Note: Nomenclature changes appear at 61 FR 2899, Jan. 30, 
1996.



Sec.  1924.101  Purpose.

    This subpart establishes the basic Rural Housing Service (RHS) 
policies for planning and performing site development work. It also 
provides the procedures and guidelines for preparing site development 
plans consistent with Federal laws, regulations, and Executive Orders.



Sec.  1924.102  General policy.

    (a) Rural development. This subpart provides for the development of 
building sites and related facilities in rural areas. It is designed to:
    (1) Recognize community needs and desires in local planning, 
control, and development.
    (2) Recognize standards for building-site design which encourage and 
lead to the development of economically stable communities, and the 
creation of attractive, healthy, and permanent living environments.
    (3) Encourage improvements planned for the site to be the most cost-
effective of the practicable alternatives. Encourage utilities and 
services utilized to be reliable, efficient, and available at reasonable 
costs.
    (4) Provide for a planning process that will consider impacts on the 
environment and existing development in order to formulate actions that 
protect, enhance, and restore environmental quality.
    (5) No site will be approved unless it meets the requirements of 
this part and all state and local permits and approvals in connection 
with the proposed development have been obtained.
    (b) Subdivisions. RHS does not review or approve subdivisions. Each 
site approved by RHS must meet the requirements of Sec.  1924.115, on a 
site by site basis.

[[Page 163]]

    (c) Development related costs. (1) Applicant. The applicant is 
responsible for all costs incurred before loan or grant closing 
associated with planning, technical services, and actual construction. 
These costs may be included in the loan or grant as authorized by RHS 
regulations.
    (2) Developer. The developer is responsible for payment of all costs 
associated with development.



Sec.  1924.103  Scope.

    This subpart provides supplemental requirements for Rural Rental 
Housing (RRH) loans, Rural Cooperative Housing (RCH) loans, Farm Labor 
Housing (LH) loans and grants, and Rural Housing Site (RHS) loans. It 
also provides a site development standard, as indicated in exhibit B of 
FmHA Instruction 1924-C (available in any RHS field office), which 
supplements this subpart to provide the minimum for the acceptability of 
development. All of this subpart applies to Single Family Housing unless 
otherwise noted. All of this subpart also applies to Multiple Family 
Housing except Sec. Sec.  1924.115 and 1924.120, and any paragraph 
specifically designated for Single Family Housing only. In addition, RHS 
will consult with appropriate Federal, state, and local agencies, other 
organizations, and individuals to implement the provisions of this 
subpart.



Sec.  1924.104  Definitions.

    As used in this subpart:
    Applicant. Any person, partnership, limited partnership, trust, 
consumer cooperative, corporation, public body, or association that has 
filed a preapplication, or in the case of RHS programs that do not 
require a preapplication, an official application, with RHS in 
anticipation of receiving or utilizing RHS financial assistance.
    Community. A community includes cities, towns, boroughs, villages, 
and unincorporated places which have the characteristics of incorporated 
areas with support services such as shopping, post office, schools, 
central sewer and water facilities, police and fire protection, 
hospitals, medical and pharmaceutical facilities, etc., and are easily 
identifiable as established concentrations of inhabited dwellings and 
private and public buildings.
    Developer. Any person, partnership, public body, or corporation who 
is involved with the development of a site which will be financed by 
RHS.
    Development. The act of building structures and installing site 
improvements on an individual dwelling site, a subdivision, or a 
multiple family tract.
    Multiple Family Housing. RHS RRH loans, RCH loans, LH loans and 
grants, and RHS loans.
    Single Family Housing. RHS Rural Housing loans for individuals for 
construction of, repair of, or purchase of a dwelling to be occupied by 
one household.
    Site. A parcel of land proposed as a dwelling site, with or without 
development.
    Site approval official. The RHS making the determination that a site 
meets the requirements in this subpart to be acceptable for site loans. 
(See Sec.  1924.120.)
    Street surfaces. Streets may be hard or all-weather surfaced.
    (1) Hard surface--a street with a portland cement concrete, 
asphaltic concrete, or bituminous wearing surface or other hard surfaces 
which are acceptable and suitable to the local public body for use with 
local climate, soil, gradient, and volume and character of traffic.
    (2) All-weather--a street that can be used year-round with a minimum 
of maintenance, such as the use of a grader and minor application of 
surface material, and is acceptable and suitable to the local public 
body for use with local climate, soil, gradient, and volume and 
character of traffic.
    Subdivision. Five or more contiguous (developed or undeveloped) lots 
or building sites. Subdivisions may be new or existing.



Sec.  1924.105  Planning/performing development.

    (a) General. Planning is an evaluation of specific development for a 
specific site. Planning must take into consideration topography, soils, 
climate, adjacent land use, environmental impacts, energy efficiency, 
local economy, aesthetic and cultural values, public and private 
services, housing and social

[[Page 164]]

conditions, and a degree of flexibility to accommodate changing demands. 
All planning and performing development work is the responsibility of 
the applicant or developer. All development will be arranged and 
completed according to applicable local, state, or Federal regulations 
including applicable health and safety standards, environmental 
requirements, and requirements of this subpart. When a public authority 
requires inspections prior to final acceptance, written assurance by the 
responsible public authority of compliance with local, city, county, 
state or other public codes, regulations, and ordinances is required 
prior to final acceptance by RHS.
    (1) [Reserved]
    (2) Technical Services. [Reserved]
    (i) [Reserved]
    (ii) An applicant or developer for a Multiple Family Housing project 
or a Single Family Housing site which requires technical services under 
Sec.  1924.13(a), must contract for the technical services of an 
architect, engineer, land surveyor, landscape architect, or site 
planner, as appropriate, to provide complete planning, drawings, and 
specifications. Such services may be provided by the applicant's or 
developer's ``in house'' staff subject to RHS concurrence. Technical 
services must be performed by professionals who are qualified and 
authorized to provide such services in the state in which the project 
would be developed. All technical services must be provided in 
accordance with the requirements of professional registration or 
licensing boards. At completion of all construction or completion of a 
phase or phases of the total project, the persons providing technical 
services under this section must notify the RHS field office in writing 
that all work has been completed in substantial conformance with the 
approved plans and specifications.
    (iii) For developments not specifically required to have technical 
services under paragraph (a)(2)(ii) of this section, such services may 
be required by the state director when construction of streets or 
installation of utilities is involved.
    (3) Drawings, specifications, contract documents, and other 
documentations. Adequate drawings and specifications must be provided by 
the applicant or developer to RHS in sufficient detail to fully and 
accurately describe the proposed development. Contract documents must be 
prepared in accordance with Sec.  1924.6 or, in the case of more complex 
construction, Sec.  1924.13.
    (b) Single Family Housing. Proposals for development of individual 
dwelling sites must meet the following requirements:
    (1) Site development design requirements. Exhibit B (available in 
any RHS field office) will be used as a minimum by applicants or 
developers in preparing proposals and supporting documents for Single 
Family Housing loans, in addition to specific requirements made in this 
subpart.
    (2) [Reserved]
    (c) Multiple Family Housing. Exhibit C (available in any RHS office) 
should be used as a guide by the applicant or developer in preparing a 
proposal and supporting documents for multiple family housing projects.



Sec.  1924.106  Location.

    (a) General. It is RHS's policy to promote compact community 
development and not to approve sites located in floodplains, on 
wetlands, or on important farmlands, unless there is no practical 
alternative. Furthermore, RHS will not finance development on locations 
that adversely affect properties which are listed or are eligible for 
listing on the National Register of Historic Places, located within the 
Coastal Barrier Resource System, or on a barrier island. (Environmental 
requirements are found in 7 CFR part 1940, subpart G.) In order to be 
eligible for RHS participation:
    (1) The site must be located in an eligible area as defined in the 
program regulations under which the development is being funded or 
approved.
    (2) The site must comply with the applicable environmental laws, 
regulations, Executive Orders, and subpart G of part 1940.
    (b) Single Family Housing. In addition to the general requirements 
in paragraph (a) of this section, sites must provide a desirable, safe, 
functional, convenient, and attractive living environment for the 
residents.

[[Page 165]]

    (c) Multiple Family Housing. Multiple family housing projects shall 
be located in accordance with the requirements in paragraph (r) of Sec.  
1944.215. Locating sites in less than desirable locations of the 
community because they are in close proximity to undesirable influences 
such as high activity railroad tracks; adjacent to or behind industrial 
sites; bordering sites or structures which are not decent, safe, or 
sanitary; or bordering sites which have potential environmental concerns 
such as processing plants, etc., is not acceptable. Screening such sites 
does not make them acceptable. Sites which are not an integral part of a 
residential community and do not have a reasonable access, either by 
location or terrain, to essential community facilities such as water, 
sewerage, schools, shopping, employment opportunities, medical 
facilities, etc., are not acceptable.



Sec.  1924.107  Utilities.

    All development under this subpart must have adequate, economic, 
safe, energy efficient, dependable utilities with sufficient easements 
for installation and maintenance.
    (a) Water and wastewater disposal systems. (1) Single Family 
Housing. If sites are served by central water or sewer systems, the 
systems must meet the requirements of paragraphs (a)(2) (i) and (ii) of 
this section. If sites have individual water or sewer systems, they must 
meet the requirements of the state department of health or other 
comparable reviewing and regulatory authority and the minimum 
requirements of exhibit B (available in any RHS field office), 
paragraphs V and VI. Sites in subdivisions of more than 25 dwelling 
units on individual systems, or sites that do not meet the requirements 
of exhibit B, paragraphs V and VI, must have state director concurrence.
    (2) Multiple Family Housing. Proposals processed under this 
paragraph shall be served by centrally owned and operated water and 
wastewater disposal systems unless this is determined by RHS to be 
economically or environmentally not feasible. All central systems, 
whether they are public, community, or private, shall meet the design 
requirements of the state department of health or other comparable 
reviewing and regulatory authority. The regulatory authority will verify 
in writing that the water and wastewater systems are in compliance with 
the current provisions of the Safe Drinking Water Act and the Clean 
Water Act, respectively.
    (i) Sites which are not presently served by a central system, but 
are scheduled for tie-in to the central system within 2 years, should 
have all lines installed during the initial construction. Such sites 
must have an approved interim water supply or wastewater disposal system 
installed capable of satisfactory service until the scheduled tie-in 
occurs.
    (ii) In addition to written assurance of compliance with state and 
local requirements, there must be assurance of continuous service at 
reasonable rates for central water and wastewater disposal systems. 
Public ownership is preferred whenever possible. In cases where interim 
facilities are installed pending extension or construction of permanent 
public services, the developer must assume responsibility for the 
operation and maintenance of the interim facility or establish an entity 
for its operation and maintenance which is acceptable to the local 
governing body. If a system is not or will not be publicly owned and 
operated, it must comply with one of the following:
    (A) Be an organization that meets the ownership and operating 
requirements for a water or wastewater disposal system that RHS could 
finance under 7 CFR part 1942, subpart A or be dedicated to and accepted 
by such an organization.
    (B) Be an organization or individual that meets other acceptable 
methods of ownership and operation as outlined in HUD Handbook 4075.12, 
``Ownership and Organization of Central Water and Sewerage Systems.'' 
RHS should be assured that the organization has the right, in its sole 
discretion, to enforce the obligation of the operator of the water and 
sewerage systems to provide satisfactory continuous service at 
reasonable rates.
    (C) Be adequately controlled as to rates and services by a public 
body (unit of Government or public services commission).

[[Page 166]]

    (iii) Multiple family developments of more than 25 units with 
individual system must have national office concurrence.
    (A) [Reserved]
    (B) Supporting information for the proposed individual water 
systems, covering the following points:
    (1) In areas where difficulty is anticipated in developing an 
acceptable water supply, the availability of a water supply will be 
determined before closing the loan.
    (2) Documentation must be provided that the quality of the supply 
meets the chemical, physical, and bacteriological standards of the 
regulatory authority having jurisdiction. The maximum contaminant levels 
of U.S. EPA shall apply. Individual water systems must be tested for 
quantity and bacteriological quality. Where problems are anticipated 
with chemical quality, chemical tests may be required. Chemical tests 
would be limited to analysis for the defects common to the area such as 
iron and manganese, hardness, nitrates, pH, turbidity, color, or other 
undesirable elements. Polluted or contaminated water supplies are 
unacceptable. In all cases, assurance of a potable water supply before 
loan closing is required.
    (C) Supporting information for individual wastewater disposal 
systems with subsurface discharge provided by a soil scientist, 
geologist, soils engineer, or other person recognized by the local 
regulatory authority. This data must include the following:
    (1) Assurance of nonpollution of ground water. The local regulatory 
authority having jurisdiction must be consulted to ensure that 
installation of individual wastewater systems will not pollute ground 
water sources or create other health hazards or otherwise violate State 
water quality standards.
    (2) Records of percolation tests. Guidance for performing these 
tests is included in the EPA design manual, ``Onsite Wastewater 
Treatment and Disposal Systems'' and the minimum RHS requirements are in 
exhibit B, paragraph VI. (These may be waived by the state director when 
the state has established other acceptable means for allowing onsite 
disposal.)
    (3) Determination of soil types and description. The assistance of 
the SCS or other qualified persons should be obtained for soil type 
determination and a copy of its recommendations included in the 
documentation.
    (4) Description of ground water elevations, showing seasonal 
variations.
    (5) Confirmation of space allowances. An accurate drawing to 
indicate that there is adequate space available to satisfactorily locate 
the individual water and wastewater disposal systems; likewise, 
documented assurance of compliance with all local requirements. 
Structures served by wastewater disposal systems with subsurface 
discharge require larger sites than those structures served by another 
type system.
    (6) Description of exploratory pit observations, if available.
    (D) Supporting information for individual wastewater disposal 
systems with surface discharge covering the following points:
    (1) Effluent standards issued by the appropriate regulatory agency 
that controls the discharge of the proposed individual systems. 
Assurance from this regulatory agency that the effluent standards will 
not be exceeded by the individual systems being proposed must be 
included.
    (2) Program of maintenance, parts, and service available to the 
system-owner for upkeep of the system.
    (3) A plan for local inspection of the system by a responsible 
agency with the authority to ensure compliance with health and safety 
standards.
    (b) Electric service. The power supplier will be consulted by the 
applicant to assure that there is adequate service available to meet the 
needs of the proposed site. Underground service is preferred.
    (c) Gas service. Gas distribution facilities, if provided, will be 
installed according to local requirements where adequate and dependable 
gas service is available.
    (d) Other utilities. Other utilities, if available, will be 
installed according to local requirements.



Sec.  1924.108  Grading and drainage.

    (a) General. Soil and geologic conditions must be suitable for the 
type of

[[Page 167]]

construction proposed. In questionable or unsurveyed areas, the 
applicant or developer will provide an engineering report with 
supporting data sufficient to identify all pertinent subsurface 
conditions which could adversely affect the structure and show proposed 
solutions. Grading will promote drainage of surface water away from 
buildings and foundations, minimize earth settlement and erosion, and 
assure that drainage from adjacent properties onto the development or 
from the development to adjacent properties does not create a health 
hazard or other undesirable conditions. Grading and drainage will comply 
with exhibit B, paragraphs III and IV, of this subpart.
    (b) Cuts and fills. Development requiring extensive earthwork, cuts 
and fills of 4 feet or more shall be designed by a professional 
engineer. Where topography requires fills or extensive earthwork that 
must support structures and building foundations, these must be 
controlled fills designed, supervised, and tested by a qualified soils 
engineer.
    (c) Slope protection. All slopes must be protected from erosion by 
planting or other means. Slopes may require temporary cover if exposed 
for long periods during construction.
    (d) Storm water systems. The design of storm water systems must 
consider convenience and property protection both at the individual site 
level and the drainage basin level. Storm water systems should be 
compatible with the natural features of the site. In areas with 
inadequate drainage systems, permanent or temporary storm water storage 
shall be an integral part of the overall development plan. Design of 
these facilities shall consider safety, appearance, and economical 
maintenance operations.



Sec. Sec.  1924.109-1924.114  [Reserved]



Sec.  1924.115  Single Family Housing site evaluation.

    (a) Site review. The site approval official will evaluate each site 
(developed or undeveloped) to determine acceptance for the program. 
Information on the site will be provided by the appraiser or site 
approval official on a form provided by RHS and available in any RHS 
field office.
    (b) Site access. Each site must be contiguous to and have direct 
access from:
    (1) A hard surfaced or all weather road which is developed in full 
compliance with public body requirements, is dedicated for public use, 
and is being maintained by a public body or a home owners association 
that has demonstrated its ability or can clearly demonstrate its ability 
to maintain the street; or
    (2) An all weather extended driveway which can serve no more than 
two sites connecting to a hard surface or all weather street or road 
that meets the requirements of paragraph (b)(1); or
    (3) A hard surfaced street in a condominium or townhouse complex 
which:
    (i) Is owned in common by the members or a member association and is 
maintained by a member association that has demonstrated its ability or 
can clearly demonstrate its ability to maintain the street; and
    (ii) Connects to a publicly owned and dedicated street or road.
    (c) Exceptions to street requirements. A site not meeting the 
conditions in paragraph (b) of this section will be acceptable if:
    (1) The applicant is a builder for a conditional commitment (a loan 
will not be approved until the site meets the conditions in paragraph 
(b) of this section), or the builder posts an irrevocable performance 
and payment bond (or similar acceptable assurance) that assures the site 
approval official that the site will be developed to meet the conditions 
in paragraph (b) of this section; or
    (2) The site is recommended by the site approval official and 
approved by the state director. A request for state director approval 
must justify that it is in the best interest of both the government and 
the applicant to approve the site.
    (d) Site layout. (1) Sites shall be surveyed and platted. Permanent 
markers shall be placed at all corners.
    (2) Sites shall meet all requirements of state and local entities 
and RHS.
    (e) Covenants, conditions and restrictions. Sites in subdivisions 
shall be protected by covenants, conditions, and restrictions (CC&Rs) to 
preserve the

[[Page 168]]

character, value, and amenities of the residential community and to 
avoid or mitigate potential environmental impacts unless, an exception 
is granted by RHS after considering the suitability of local ordinances, 
zoning, and other land use controls.
    (1) CC&Rs shall be recorded in the public land records and 
specifically referenced in each deed.
    (2) The intent of the CC&Rs is to assure the developers that the 
purchasers will use the land in conformance with the planned objectives 
for the community. In addition, the CC&Rs should assure the purchasers 
that the land covered by the CC&Rs will be used as planned and that 
other purchasers will use and maintain the land as planned to prevent 
changes in the character of the neighborhood that would adversely impact 
values or create a nuisance.



Sec. Sec.  1924.116-1924.118  [Reserved]



Sec.  1924.119  Site Loans.

    Subdivisions approved under subpart G of part 1822 (FmHA Instruction 
444.8) or exhibit F of subpart I of part 1944 (available in any RHS 
field office), will meet the general requirements of this subpart to 
insure lots in the subdivision will meet the requirements of Sec.  
1924.115.



Sec. Sec.  1924.120-1924.121  [Reserved]



Sec.  1924.122  Exception authority.

    The Administrator of RHS may in individual cases, make an exception 
to any requirement or provision of this subpart or address any omission 
of this subpart which is not inconsistent with the authorizing statute 
or other applicable law if the Administrator determines that application 
of the requirement or provision would adversely affect the Government's 
interest. The Administrator will exercise this authority upon the 
written request of the state director or the appropriate program 
assistant administrator. Requests for exceptions must be supported with 
documentation to explain the adverse effect on the Government, proposed 
alternative courses of action, and show how the adverse effect will be 
eliminated or minimized if the exception is granted.



Sec. Sec.  1924.123-1924.149  [Reserved]



Sec.  1924.150  OMB Control Number.

    The reporting requirements contained in this subpart have been 
approved by the Office of Management and Budget (OMB) and have been 
assigned OMB control number 0575-0164. Public reporting burden for this 
collection of information is estimated to vary from 5 minutes to 10 
minutes per response, with an average of .13 hours per response, 
including time for reviewing instructions, searching existing data 
sources, gathering and maintaining the data needed, and completing and 
reviewing the collection of information. Send comments regarding this 
burden estimate or any other aspect of this collection of information, 
including suggestions for reducing this burden to the Department of 
Agriculture, Clearance Officer, OIRM, Ag Box 7630, Washington, DC 20250; 
and to the Office of Management and Budget, Paperwork Reduction Project 
(OMB 0575-0164), Washington, DC 20503.

             Exhibit A to Subpart C of Part 1924 [Reserved]

      Exhibit B to Subpart C of Part 1924--Site Development Design 
                              Requirements

    This exhibit prescribes site development requirements to be used in 
developing residential sites in all housing programs. These requirements 
cover only those areas which involve health and safety concerns. They 
are not intended to cover all aspects of site development. Applicants 
and developers are expected to follow local practice, as a minimum, in 
all areas of site development not addressed in this exhibit. When State, 
local, or other requirements are applicable in addition to FmHA or its 
successor agency under Public Law 103-354's requirements, the most 
stringent requirement shall apply.
    Proper integration of the natural features of a site with the 
manmade improvements is one of the most critical aspects of residential 
development. Poor site planning in large scale subdivisions, rental 
projects and individual sites, has resulted in a loss of valuable 
private and public natural resources and caused economic burdens and 
conditions unsuitable for healthy and pleasant living. Proper site 
design can preserve desirable natural features of the site, minimize 
expenses for streets and utilities, and provide a safe and pleasant 
living environment.

[[Page 169]]

                            Table of Contents

                               I. Streets

A. Types
    1. Collector Streets
    2. Local Streets
B. Design Features
    1. Emergency Access
    2. Cul-de-sacs
    3. Intersection Angle
    4. Intersection Sight Distance
C. Street Geometry
    1. Definitions
    2. Design Requirements
D. Construction

                           II. Walks and Steps

A. Walks
B. Exterior Steps Not Contiguous to Dwelling or Building
    1. Flight
    2. Risers and Treads
    3. Landings
    4. Handrails

                              III. Grading

A. Compaction
B. Gradients

                              IV. Drainage

A. General
    1. Collection and Disposal
    2. Concentrated Flow
B. Drainage Design and Flood Hazard Exposure
    1. Storm Frequences
    2. Street Drainage
    3. Foundation Drainage
C. Primary Storm Sewer
    1. Pipe Size
    2. Minimum Gradient
    3. Easements
D. Drainage Swals and Gutters
    1. Design
    2. Easements
E. Downspouts
    1. Outfall
    2. Piped Drainage
F. Storm Inlets and Catch Basins
    1. Openings
    2. Access
G. Drywells

                         V. Water Supply Systems

A. Individual Water Systems
    1. General
    2. Well Location
    3. Well Construction
    4. Pumps and Equipment
    5. Storage Tanks
B. Community Water Systems
    1. Definition
    2. Design

                     VI. Wastewater Disposal Systems

A. Individual Wastewater Disposal Systems
    1. General
    2. Percolation Tests
    3. Subsurface Absorption Systems
B. Community Wastewater Disposal Systems
    1. Definition
    2. Design

                               I. Streets

    A. Types--1. Collector streets. Collector streets are feeder streets 
which carry traffic from local streets to the major system of arterial 
streets and highways. They include the principal entrance streets of 
residential developments and streets for circulation within such 
developments.
    2. Local streets. Local streets are minor streets used primarily for 
access to abutting properties. These include drives serving multi-family 
housing units.
    B. Design Features--1. Emergency Access. Access for fire equipment 
and other emergency vehicles shall be within 100 feet of main building 
entrances.
    2. Cul-de-sacs. Cul-de-sac streets shall have a turn-around with an 
outside roadway diameter of at least 80 feet, and a right-of-way 
diameter of at least 100 feet.
    3. Intersection Angle. Streets shall be laid out to intersect as 
nearly as possible at right angles and no street shall intersect any 
other street at an angle less than 75 degrees. Curb radii shall be a 
minimum of 20 feet for street intersections.

[[Page 170]]

[GRAPHIC] [TIFF OMITTED] TC22SE91.000

    4. Intersection Sight Distance. Adequate distances must be 
maintained at intersections. Vehicles must be visible when within 75 
feet of the centerlines of uncontrolled intersecting streets.
    C. Street Geometry--1. Definitions. The definitions in Sections 
I.C.1.a and I.C.1.b. apply to the requirements in Section I.C.2.
    a. Terrain Classifications.
    (1) Ordinary--Slope less than 8%.
    (2) Rolling--Slope range of 8% to 15%.
    (3) Hilly--Slope greater than 15%.
    b. Development Density (Number of Lots). (Land Area minus 
Undeveloped Areas greater than Average Lot Size)
    (1) Low--Less than 2 lots per acre.
    (2) Medium--2 to 6.0 lots per acre.
    (3) High-More than six lots per acre.
    2. Design Requirements. Collector streets and local streets shall 
comply with the requirements in tables 1 and 2 unless an exception is 
granted by the State Director. These requirements may need modification 
in localities having winter icing conditions.

                                         Table 1--Pavement Widths (feet)
----------------------------------------------------------------------------------------------------------------
                                                                                       Development density
                Street type                      On-street parallel parking     --------------------------------
                                                                                    Low       Medium      High
----------------------------------------------------------------------------------------------------------------
Collector..................................  Prohibited........................         26         32         36
Collector..................................  No Restrictions...................         36         36         40
Local......................................  Prohibited........................         18         18         20
Local......................................  Partial, One Side \1\.............         18         20         26
Local......................................  Partial, One Side \1\.............         22         26         32
Local......................................  Total, One Side \2\...............         22         26         26
Local......................................  Total, Both Sides \2\.............         26         32         36
----------------------------------------------------------------------------------------------------------------
(\1\) At least one parking space per dwelling is provided off-street.
(\2\) No parking spaces are provided off-street.


                      Table 2--Street Design (feet)
------------------------------------------------------------------------
                                                     Terrain
                                        --------------------------------
                                          Ordinary   Rolling     Hilly
------------------------------------------------------------------------
(1) Collector street:
  (a) Minimum centerline radius of             300        225        150
   curvature...........................
  (b) Minimum sight distance...........        250        200        150
  (c) Minimum right-of-way width.......         60         60         60
(2) Local Street:
  (a) Minimum centerline radius of             200        150        100
   curvature...........................
  (b) Minimum sight distance...........        200        150        100
  (c) Minimum right-of-way width \1\...         50         50         50
------------------------------------------------------------------------
(\1\) For cul-de-sac streets, the minimum right-of-way width is 40 feet.

    D. Construction. Street configuration and wearing surfaces must 
provide safe and economical access to all building sites. The design and 
construction of the street shall be appropriate for all anticipated 
traffic, climatic and soil conditions. Streets shall meet or exceed all 
local, county, and State requirements.

[[Page 171]]

                           II. Walks and Steps

    A. Walks. Where walks are provided, they shall be located to assure 
a minimum vertical clearance of 7 feet from all permanent or temporary 
obstructions. Walks shall have a slip resistant surface.
    B. Exterior Steps Not Contiguous to Dwelling or Building--1. Flight. 
a. Single steps or flights of steps exceeding a vertical height of 12 
feet shall not be accepted.
    b. Steps shall be set back from an intersecting walk or drive a 
minimum of 1 foot at a retaining wall and 2 feet at slopes.
    2. Risers and Treads. a. Risers shall be a maximum of 6 inches, a 
minimum of 3 inches and uniform throughout the flight.
    b. Treads shall be a minimum of 12 inches and uniform throughout the 
flight.
    c. Treads shall have a slip resistant surface.
    d. Treads shall be pitched appropriately to ensure drainage.
    3. Landings. a. Minimum length shall equal 3 feet or walk width 
whichever is greater.
    b. A change in direction in a flight of stairs shall be accomplished 
only at a landing or by a winder which has a tread width at a point 18 
inches from the converging end, equal to the full straight stair tread 
width.
    4. Handrails. Stairways having a flight rise exceeding 30 inches 
shall have a 36 inch high handrail located on one side for stairs 5 feet 
or less in width and on both sides of stairways over 5 feet wide.

                              III. Grading

    A. Compaction--All fill for street or home construction shall have 
compaction of not less than 95 percent maximum density, as determined by 
proctor or other accepted testing methods. Maximum thickness of 
compaction layers shall be 6 inches except where compaction equipment of 
demonstrated capability is used under the direction of a qualified soils 
engineer. Earth fill used to support a building foundation shall be a 
controlled fill which is designed, supervised, and tested by a qualified 
soils engineer in accordance with good practice.
    B. Gradients. Grading design shall be arranged to assure safe and 
convenient all-weather pedestrian and vehicular access to residential 
buildings and to all other necessary site facilities. Site grading shall 
be designed to establish building floor elevations and ground surface 
grades which allow drainage of surface water away from buildings and 
adjacent sites. Grading design shall conform with tables 3 and 4.

                Table 3--Access and Parking Gradients \1\
                              [In percent]
------------------------------------------------------------------------
                                     Minimum               Maximum
                             -------------------------------------------
                                          Crown or              Crown or
                                Center     cross      Center     cross
                                 line      slope       line      slope
------------------------------------------------------------------------
Streets.....................        0.5        1.0       14.0        5.0
Street Intersections........        0.5        1.0     \2\5.0        5.0
Driveways (\3\).............        .05        1.0       14.0        5.0
Sidewalks (\4\):
    Concrete................  .........        0.5  .........  .........
    Bituminous..............  .........        1.0  .........  .........
    Building Entrances &            1.0  .........       12.0        5.0
     Short Walks............
    Main Walks..............        0.5  .........       10.0        5.0
    Adjoining Steps.........  .........  .........        2.0  .........
    Landings................  .........        1.0  .........  .........
    Stepped Ramp Treads.....        1.0  .........        2.0        5.0
Parking.....................  .........        0.5        5.0        5.0
------------------------------------------------------------------------
\1\ Approximate Equivalents .5%=\1/16\ ft., 1.0=\1/8\ ft., 2.0%=\1/4\ ft., 5.0%=\5/8\ ft.,
  10.0%=1\1/4\ ft., 12.0%=1\1/2\ ft., 21%=2\5/
  8\ ft.
\2\ Grades approaching intersections shall not exceed 5 percent for a
  distance of not less than 100 feet from the centerline of the
  intersection.
\3\ Vertical transitions shall percent contact of car undercarriage of
  bumper with driveway surface.
\4\ Five percent maximum for major use by elderly tenants.


                      Table 4--Slope Gradients \1\
                              [In percent]
------------------------------------------------------------------------
                                                     Minimum    Maximum
------------------------------------------------------------------------
           Slope Away From Foundations:
    Pervious Surfaces.............................    \2\ 5.0   \3\ 21.0
    Impervious Surfaces...........................     \2\1.0       21.0
                Pervious Surfaces:
    Ground Frost Area.............................        2.0  .........
    Non-Ground Frost Areas........................     \4\1.0  .........
Impervious Surfaces...............................        0.5  .........

[[Page 172]]

 
Slopes to be maintained by Machine................  .........    \3\33.0
------------------------------------------------------------------------
\1\ See table 3, footnote (1).
\2\ Minimum length of 10 feet or as limited by property lines.
\3\ Minimum length of 4 feet.
\4\ The minimum is 2.0% if the annual precipitation is more than 50
  inches.

                              IV. Drainage

    A. General--1. Collection and Disposal. Surface and subsurface 
drainage systems shall be provided, as appropriate, for collection and 
disposal of storm drainage and subsurface water. These systems shall 
provide for the safety and convenience of occupants. They shall protect 
dwellings, other improvements and useable lot areas from water damage, 
flooding, and erosion.
    2. Concentrated Flow. Where storm drainage flow is concentrated, 
permanently maintained facilities shall be provided to prevent 
significant erosion and other damage or flooding on site or on adjacent 
properties.
    B. Drainage Design and Flood Hazard Exposure--1. Storm Frequency. 
Drainage facilities shall be designed for a 10 year storm frequency of 
24-hour duration. Full potential development of all contributing areas 
shall be used as a basis for this determination.
    2. Street Drainage. Streets shall be useable during runoff 
equivalent to a 10-year return frequency. Where drainage outfall is 
inadequate to prevent runoff equivalent to a 10-year return frequency 
from ponding over 6 inches deep, streets shall be made passable for 
local commonly used emergency vehicles during runoff equivalent to a 25-
year return frequency except where an alternative access street not 
subject to such ponding is available.
    3. Foundation Drainage. Appropriate crawl space and foundation 
drainage shall be provided for the removal of subsurface moisture.
    C. Primary Storm Sewer--1. Pipe Size. Pipe size for the primary 
storm sewer (any storm sewer or inlet lateral located in a street or 
other public right-of-way) shall have an inside diameter based on design 
analysis but not less than 15 inches. Where anticipated runoff from the 
five-year return frequency rainfall will not fill a 15 inch pipe, a 
primary storm sewer system usually is unnecessary.
    2. Minimum Gradient. Minimum gradient shall be selected to provide 
for self-scouring of the conduit under low-flow conditions and for 
removal of sediments foreseeable from the drainage area.
    3. Easements. Easements for storm sewers shall be a minimum of 10 
feet in width.
    D. Drainage Swals and Gutters--1. Design. Paved gutters shall have a 
minimum grade of 0.5 percent. Paved gutters and unpaved drainage swales 
shall have adequate depth and width to accommodate the maximum 
foreseeable runoff without overflow. Swales and gutters shall be seeded, 
sodded, sprigged or paved as appropriate to minimize potential erosion. 
Side slopes shall be no steeper than 2:1.
    2. Easements. Surface channels shall have an easement which is at 
least the width of the channel plus 10 feet.
    E. Downspouts--1. Outfall. Where downspouts are provided, they shall 
either be connected to an available storm sewer, provided with suitable 
splash blocks, or empty at acceptable locations onto paved areas so that 
water drains away from buildings. Downspouts shall not connect to 
sanitary sewers.
    2. Piped Drainage. Piped roof drainage from buildings shall be 
connected to available storm sewers or empty at locations where no 
erosion or other damage will be caused.
    F. Storm Inlets and Catch Basins--1. Openings. Where inlets are 
accessible to small children, openings shall have one dimension limited 
to 6 inch access. Inlet openings in paved areas shall be designed to 
avoid entrapment or impedence of bicycles, baby carriages, etc.
    2. Access. Access for cleaning shall be provided to all inlet boxes 
and catch basins.
    G. Drywells--Drywells for the disposal of water from foundation 
drains, crawl spaces, and other small quantity sources shall be 
permissible where the bottom of drywells project into strata of 
undistributed porous soil at a level where the bottom of the drywell 
will be above the ground water table at its highest seasonal elevation.

                         V. Water Supply Systems

    A. Individual Water Systems--1. General. a. In this subpart, an 
individual water system is a system which serves fewer customers or 
connections than the lower threshold for community systems stated in the 
Safe Drinking Water Act.
    b. The system for an individual household should be capable of 
delivering a sustained flow of 5 gpm. A system supplying water to 
multiple household shall be designed by a Professional Engineer and have 
sufficient capacity to serve estimated demand. A test of at least 4 
hours duration shall be conducted to determine the yield and maximum 
drawdown for all wells developed as part of an individual water system. 
This test may be

[[Page 173]]

waived by the State Office based on the hydrologic and geologic 
conditions in the area.
    c. Water that requires continual or repetitive treatment to be safe 
bacterially is not acceptable.
    d. After installation, the system should be disinfected in 
accordance with the recommendations of the health authority. In the 
absence of a health authority, system cleaning and disinfection should 
conform with the current EPA Manual of Individual Water Supply Systems.
    e. Any method for individual water supply contained herein which is 
not permitted by the local health authority having jurisdiction shall 
not be used.
    2. Well Location--a. A well located within the foundation walls of a 
dwelling is not acceptable except in arctic and sub-arctic regions.
    b. Water which comes from soil formation which may be polluted or 
contaminated or is fissured or creviced or which is less than 20 feet 
below the natural ground surface (subject to the requirements of the 
local health authority) is not acceptable.
    c. Individual water supply systems are not acceptable for individual 
lots in areas where chemical soil poisoning is practiced if the 
overburden of soil between the ground surface and the water bearing 
strata is coarse-grained sand, gravel, or porous rock, or is creviced in 
a manner which will permit the recharge water to carry the toxicants 
into the zone of saturation.
    d. Table 5 shall be used in establishing the minimum acceptable 
distances between wells and sources of pollution located on either the 
same or adjoining lots. These distances may be increased by either the 
health authority having jurisdiction or the FmHA or its successor agency 
under Public Law 103-354 State Director.

               Table 5--Distance From Source of Pollution
------------------------------------------------------------------------
                                                               Minimum
                                                              horizontal
                    Source of pollution                        distance
                                                                (feet)
------------------------------------------------------------------------
Property Line..............................................           10
Septic Tank................................................           50
Absorption field...........................................       \1\100
Seepage pit................................................       \1\100
Absorption Bed.............................................       \1\100
Sewer Lines w/Permanent Watertight Joints..................           10
Other Sewer Lines..........................................           50
Chemically Poisoned Soil...................................       \1\100
Dry Well...................................................           50
Other......................................................      (\2\)--
------------------------------------------------------------------------
Notes:
\1\ The horizontal distance between the sewage absorption system and the
  well, or the chemically poisoned soil and the well, may be reduced to
  50 feet only where the ground surface is effectively separated from
  the water bearing formation by an extensive, continuous impervious
  strata of clay, hard-pan, or rock. The well shall be constructed so as
  to prevent the entrance of surface water and contaminants.
\2\ Other sources of pollution could be fuel oil or gasoline storage
  tanks, farm yards or chemical storage tanks, etc. The well should be
  separated from these sources of pollution a distance recommended by
  the local health authority.

    3. Well Construction--a. The well shall be constructed to allow the 
pump to be easily placed and to function properly.
    b. All drilled wells shall be provided with a sound, durable and 
watertight casing capable of sustaining the loads imposed. The casing 
shall extend from a point several feet below the water level at drawdown 
or from an impervious strata above the water level, to 12 inches above 
either the ground surface or the pump room floor. The casing shall be 
sealed at the upper opening.
    c. Bored wells shall be lined with concrete, vitrified clay, or 
equivalent materials.
    d. The space between the casing or liner and the wall of the well 
hole shall be sealed with cement grout.
    e. The well casing shall not be used to convey water except under 
positive pressure. A separate drop pipe shall be used for suction line.
    f. When sand or silt is encountered in the water-bearing formation, 
the well shall either be gravel packed, or a removable strainer or 
screen shall be installed.
    g. The surface of the ground above and around the well shall be 
graded to drain surface water away from the well.
    h. Openings in the casing, cap, or concrete cover for the entrance 
of pipes, pump or manholes, shall be made watertight.
    i. If a breather is provided, it shall extend above the highest 
level to which surface water may rise. The breather shall be watertight, 
and the open end shall be screened and positioned to prevent entry of 
dust, insects and foregin objects.
    4. Pumps and Equipment--a. Pumps shall be capable of delivering the 
volume of water required herein under normal operating pressures within 
the living unit. Well pump capacity shall not exceed the output of the 
well.
    b. Pumps and equipment shall be mounted to be free of objectionable 
noises, vibrations, flooding, pollution, and freezing.
    c. Suction lines shall terminate below maximum drawdown of the water 
level in the well.
    d. Horizontal segments of suction line shall be placed below the 
frost line in a sealed casing pipe or in at least 4 inches of concrete. 
The distance from suction line to sources of pollution shall be not less 
than shown in table 5.
    5. Storage Tanks--a. A system for an individual household shall 
include a pressure tank having a minimum capacity of 42-gallons. 
However, prepressured tanks and other pressurizing devices are 
acceptable provided that delivery between pump cycles equals or exceeds 
that of a 42 gallon tank. Storage capacity on a system for multiple 
households

[[Page 174]]

must be sufficient to meet estimated peak demands.
    b. Tanks shall be equipped with a clean-out plug at the lowest 
point, and if pressurized, a suitable pressure relief valve.
    c. When additional storage is necessary because the well yield will 
not meet the system peak demands, all nonpressurized intermediate tanks 
shall be designed and installed in a manner that will prevent the 
pollution or degradation of the water supply.
    B. Community Water Systems--1. Definition. In this subpart, a 
community water system is a system which meets the definition in the 
Safe Drinking Water Act.
    2. Design. A community water system shall be designed by a 
qualified, professional engineer licensed in the state in which the 
water system will be located. Community water systems shall comply with 
all Federal and State laws.

                     VI. Wastewater Disposal Systems

    Each dwelling shall be provided with a water-carried system adequate 
to dispose of domestic wastes in a manner which will not create a 
nuisance, contaminate any existing or prospective water source or water 
supply, or in any way endanger the public health.
    A. Individual Wastewater Disposal Systems--1. General. a. In this 
subpart, an individual wastewater disposal system is a sewage disposal 
system which serves only 1 dwelling unit.
    b. When service from an acceptable public or community system is not 
available or feasible, and ground water and soil conditions are 
acceptable, an individual system may be used.
    c. Each individual wastewater disposal system shall consist of a 
house sewer, a pretreatment unit (e.g., septic tank, individual package 
treatment plant), and acceptable absorption system (subsurface 
absorption field, seepage pit(s), or subsurface absorption bed). The 
system shall be designed to receive all sanitary sewage (bathrooms, 
kitchen and laundry) from the dwelling, but not footing or roof 
drainage. It shall be designed so that gases generated anywhere in the 
system can easily flow back to the building sewer stack.
    2. Percolation Tests--a. Percolation tests are required unless a 
waiver is granted by the National Office. Waivers may be granted on a 
statewide or local basis in cases where an onsite evaluation of soils 
would be performed by a qualified soil technician, soil scientist, or 
engineer. Requests for waivers must describe the qualifications of the 
person evaluating the soils and discuss the criteria to be used in 
designing the absorption system.
    b. In uniform soils one percolation test shall be made within each 
area proposed for an absorption system. If significant soil variations 
are encountered or expected, additional tests shall be made for each 
variation.
    c. Percolation tests shall be conducted in accordance with good 
practice. Guidance for performing these tests is included in the EPA 
design manual, ``Onsite Wastewater Treatment and Disposal Systems.''
    3. Subsurface Absorption System--a. Where percolation rates, soil 
characteristics and site conditions are acceptable, an absorption system 
may be installed in an area which is well drained, has an acceptable 
slope, and is acceptable for excavation.
    b. Soils with percolation rates less than 1 minute per inch may be 
used if the soil is replaced with a layer of loamy or fine sand at least 
2 feet thick. (Refer to the EPA Design Manual, ``Onsite Wastewater 
Treatment and Disposal System''.)
    c. Soils with percolation rates greater than 60 minutes per inch are 
not acceptable for subsurface wastewater disposal systems.
    B. Community Wastewater Disposal Systems--1. Definition. In this 
subpart, a community wastewater disposal system is any wastewater 
disposal system which serves more than 1 dwelling unit.
    2. Design. A community wastewater disposal system shall be designed 
by a qualified, professional engineer licensed in the state in which the 
system will be located.

[52 FR 19284, May 22, 1987]

 Exhibit C to Subpart C of Part 1924--Checklist of Visual Exhibits and 
              Documentation for RRH, RCH, and LH Proposals

                     U.S. Department of Agriculture

  Farmers Home Administration or its successor agency under Public Law 
                                 103-354

    This exhibit lists visual exhibits and documentation necessary for 
FmHA or its successor agency under Public Law 103-354 to properly 
evaluate proposed development. Intermediate consultation by the 
applicant, builder-developer and others hereafter referred to as the 
sponsor with the FmHA or its successor agency under Public Law 103-354 
District or State Offices should be as frequent as necessary to reduce 
chances of misunderstandings and limit the amount of non-productive time 
and expense for all parties concerned.
    I. Preapplication Submission Documents: The sponsor will submit the 
following information to the District Director to determine feasibility 
of the project and general conformance with FmHA or its successor agency 
under Public Law 103-354 policy:
    A. Form 1940-20, ``Request for Environmental Information.'' Portions 
of the form must be completed when the submission contains more than 4 
dwelling units and the entire

[[Page 175]]

form must be completed when the submission contains more than 25 
dwelling units. The form and guidance concerning assembly of the 
information is available at any FmHA or its successor agency under 
Public Law 103-354 office.
    B. Location Map. A general site location map of the area indicating 
the adjacent land zoning and uses, the present and future access roads 
to the site as well as the proximity to shopping, schools, churches, and 
major transportation facilities with note of traffic volumes. If a 
satisfactory map of the locality is not available, a clear and 
preferably scaled rough sketch map that provides the required 
information will be sufficient.
    C. Property Survey Map. A current survey map of the project site 
showing the boundaries as well as all existing known features 
specifically including utilities, easements, access roads, floodplains, 
drainageways, rock outcroppings and wooded areas or specimen trees. If a 
current survey does not exist, the most accurate document which is 
available will be submitted.
    D. Soils Map and Report. A complete soils map and report, including 
``site specific'' interpretations and recommendations, from the local or 
county representative of the U.S. Department of Agriculture, Soil 
Conservation Service (SCS) Office will be included with the location and 
feasibility submission. A determination of whether or not any lands 
described in USDA Regulation 9500-3 are impacted by the proposed 
development should also be included. The local SCS office may provide 
recommendations for the development of suitable drainage and landscaping 
plans later in the planning process.
    E. Market survey. A market survey will be submitted in accordance 
with the requirements of the respective loan program as indicated in 
part 1944, subparts D and E of this chapter.
    F. Request for Exceptions. Any need for State or National Office 
exception(s) should be identified at this stage in the processing. 
Appropriate exception(s) should be requested and obtained before 
proceeding to the preliminary submission.
    G. Other. The applicant will need to submit any additional 
information that may be needed as indicated in subpart D or exhibit A-7 
of subpart E of part 1944 of this chapter. This may include but is not 
limited to:
    1. Schematic design drawings showing the proposed plot plan, typical 
unit plans, and elevations. If available, the proposed preliminary 
drawings and specifications may be submitted. This would be of 
assistance if it is determined that the loan must receive National 
Office authorization.
    2. Type of construction.
    3. The total number of living units and the number of each type of 
living unit proposed.
    4. Type of utilities such as water, sewer, gas, and electricity and 
whether each is public, community, or individually owned.
    II. Application Submission Documents: After it is determined by FmHA 
or its successor agency under Public Law 103-354 that the project is 
feasible and the location conforms with the intent of the funding 
program, the sponsor will submit the following information to the 
District Director in addition to those materials submitted previously.
    A. Property Survey. A survey (where 1 inch represents no more than 
100 feet) of the property lot showing the exact boundaries and corners 
of the property accompanied by a written description of said boundaries. 
Also, locations of predominant features such as utilities, easements, 
access points, floodplains, drainageways, rock outcroppings and wooded 
areas or specimen trees affecting the proposed development must be 
included. This document shall bear the seal of a professional licensed 
to provide surveying services in the State in which the project will be 
located. This survey could be a part of item D below.
    B. Topographic Map. An accurate topographic map showing existing and 
proposed contours with a scale compatible with the size of the project. 
The site shall be shown at a reasonable scale with 5-foot contour 
intervals. Where the site is unusually level or steep, the contour 
intervals may be varied accordingly.
    C. Preliminary Site Plan. A line drawing, to scale, showing proposed 
street locations with profiles and widths, lot layouts, major 
drainageways, and other development planned. Preliminary sections and 
details shall be provided for the street construction, curbs and 
gutters, drainageways, and other physical improvements.
    D. Preliminary Dwelling Drawings and Specifications. Drawings of the 
dwelling units, preliminary floor plans and specifications, elevations 
and sample site plans showing the placement of the individual buildings 
should be submitted.
    E. Statement of Planning and Zoning Compliance. Local, county and 
State approvals as applicable. If change of zoning or variance is 
required, the status of the variance or change of zoning shall be 
documented.
    F. Technical Service Contracts. Executed contracts for the 
professional services of an architect, engineer, land surveyor, 
landscape architect, site planner and/or soil engineer will be submitted 
as appropriate for the planning of the proposed development.
    G. Utility Approvals. Statements of approval and feasibility for 
utility systems as follows:
    1. Verification of adequate capacity and approval to tie-in with 
local existing water, wastewater disposal, electric, telephone, and 
other utility systems, as appropriate.

[[Page 176]]

    2. Tentative approval of local or State health authority for 
individual water and/or wastewater disposal systems when it is clear 
that central systems are unfeasible at this time. Use Sec.  
1924.108(a)(5) of this subpart when preparing information required.
    H. Facility Acceptance. Evidence that the appropriate public body is 
willing to accept and maintain streets, common areas, lighting, fire 
hydrants, sidewalks, drainageways, and utilities, as appropriate, when 
dedicated to said body.
    I. Preliminary Specifications. Outline specifications describing all 
the proposed materials to be used and how they are to be applied. These 
are only the materials used in the land development and construction of 
the streets, drainage, and utility work.
    J. Incremental Slopes Plan. If areas of common slope are not 
identified elsewhere in adequate detail, this information should be 
provided in a separate plan.
    K. Preliminary Grading Plan. This plan will indicate degree of work 
required to provide positive drainage of all building sites and control 
measures to be taken to eliminate soil erosion. Dwelling locations may 
be shown if they can be predetermined.
    L. Other. The applicant will need to submit any additional 
information that may be needed as indicated in the respective loan 
program regulations as indicated in part 1944, subparts D and E and part 
1822, subpart F of this chapter (FmHA or its successor agency under 
Public Law 103-354 Instruction 444.7). This may include but not be 
limited to:
    1. A detailed trade-item cost breakdown of the project for such 
items as land and right-of-way, building construction, equipment, 
utility connections, architectural/engineering and legal fees, and both 
on- and off-site improvements. The cost breakdown also should show 
separately the items not included in the loan, such as furnishings and 
equipment. This trade-item cost breakdown should be updated just prior 
to loan approval.
    2. Information on the method of construction, on the proposed 
contractor if a construction contract is to be negotiated and on the 
architectural, engineering, and legal services to be provided.
    3. For all projects containing over four units the applicant will 
submit an Affirmative Fair Housing Marketing Plan for approval by FmHA 
or its successor agency under Public Law 103-354 in accordance with 
Sec.  1901.203 of subpart E to part 1901 of this chapter. The 
Affirmative Fair Housing Marketing Plan must be prepared in a complete, 
meaningful, responsive and detailed manner.
    4. A description and justification of any related facilities 
(including but not limited to workshops, community buildings, recreation 
center, central cooking and dining facilities, or other similar 
facilities to meet essential needs) to be financed wholly or in part 
with loan funds.
    III. Technical Documents Necessary for the Obligation of Funds. All 
decisions regarding the conceptual design of the proposed project should 
be made prior to this submission. This effort is mainly to demonstrate 
that those agreed upon concepts have been transformed into construction 
documents and the necessary approvals have been granted. All items 
requiring revision or more detailed information as determined by the 
review of the preliminary submission will be resolved before the sponsor 
prepares the final submission. All documents shall be executed in a 
professional manner and shall carry the appropriate designation 
attesting to the professional qualifications of the architect, engineer, 
land surveyor or site planner. All documents will be accurately drawn at 
an appropriate scale.

[52 FR 19284, May 22, 1987, as amended at 56 FR 2202, Jan. 22, 1991]

Subparts D-E [Reserved]



     Subpart F_Complaints and Compensation for Construction Defects

    Source: 56 FR 40241, Aug. 14, 1991, unless otherwise noted.



Sec.  1924.251  Purpose.

    This subpart contains policies and procedures for receiving and 
resolving complaints concerning the construction of dwellings and 
construction, installation and set-up of manufactured homes (herein 
called ``units''), financed by the Farmers Home Administration (FmHA)or 
its successor agency under Public Law 103-354, and for compensating 
borrowers for structural defects under section 509(c) of the Housing Act 
of 1949, as amended. Provisions of this subpart do not apply to 
dwellings financed with guaranteed section 502 loans.



Sec.  1924.252  Policy.

    FmHA or its successor agency under Public Law 103-354 is responsible 
for receiving and resolving all complaints concerning the construction 
of dwellings and the construction, installation and set-up of units 
financed by FmHA or its successor agency under Public Law 103-354. FmHA 
or its successor agency under Public Law 103-354 must

[[Page 177]]

determine whether defects are structural or non-structural. If the 
defect is structural and is covered by the builder's/dealer-contractor's 
(the ``contractor'') warranty, the contractor is expected to correct the 
defect. If the contractor cannot or will not correct the defect, the 
costs of correcting the defect may be paid by the Government, or the 
borrower may be compensated for correcting the defect, under the 
provisions of this subpart. If the defect is non-structural but is 
covered under the provisions of the contractor's warranty or independent 
home warranty, the contractor is still expected to correct the defect. 
FmHA or its successor agency under Public Law 103-354 will assist the 
borrower in obtaining assistance through the independent home warranty 
company's and/or manufacturer's complaint resolution process. However, 
if the contractor cannot or will not correct a non-structural defect 
covered under the provisions of the contractor's warranty, the 
Government will not pay the costs for correcting the defect, nor will 
the borrower be compensated for doing so.



Sec.  1924.253  Definitions.

    As used in this subpart, the following definitions apply:
    (a) Newly constructed dwelling. One which:
    (1) Is financed with a section 502 insured loan;
    (2) Was constructed substantially or wholly under the contract 
method, or under a conditional commitment, or, as to only work performed 
by a contractor or covered by a manufacturer's warranty, under the 
mutual self-help program;
    (3) Was not more than one year old and not previously occupied as a 
residence at the time financial assistance was granted unless FmHA or 
its successor agency under Public Law 103-354 has extended the 
conditional commitment issued on a newly constructed dwelling in 
accordance with 7 CFR part 3550; and
    (4) Had the required construction inspections performed by FmHA or 
its successor agency under Public Law 103-354, the Department of Housing 
and Urban Development (HUD), or the Veterans Administration (VA).
    (b) Newly constructed manufactured home (unit). One which:
    (1) Is financed with a section 502 insured loan;
    (2) Was not more than one year old and not previously occupied as a 
residence at the time financial assistance was granted; and
    (3) Is built to the Federal Manufactured Home Construction and 
Safety Standards (FMHCSS) and is certified by an affixed label as shown 
in exhibit J of subpart A of part 1924 of this chapter.
    (c) Non-structural defect. A construction defect which does not 
affect the overall useful life, habitability, or structural integrity of 
the dwelling or unit. Some non-structural defects may be covered under 
the contractor's warranty. Examples of non-structural defects include, 
but are not limited to:
    (1) Cracks attributed to normal curing or settlement.
    (2) Cosmetic defects in cabinets, woodwork, floorcovering, 
wallcovering, ornamental trim, etc.
    (3) Improper or incomplete seeding or sodding of yard, or failure of 
trees, shrubs, grass and other landscaping items to thrive.
    (4) Improper grading of yard, unless the grade is causing damage 
which may lead to a structural defect.
    (d) Structural defect. A defect in the dwelling or unit, 
installation or set-up of a unit, or a related facility or a deficiency 
in the site or site development which directly and significantly reduces 
the useful life, habitability, or integrity of the dwelling or unit. The 
defect may be due to faulty material, poor workmanship, or latent causes 
that existed when the dwelling or unit was constructed. The term 
includes, but is not limited to:
    (1) Structural failures which directly and significantly affect the 
basic integrity of the dwelling or unit such as in the foundation, 
footings, basement walls, slabs, floors, framing, walls, ceiling, or 
roof.
    (2) Major deficiencies in the utility components of the dwelling or 
unit or site such as faulty wiring, or failure of sewage disposal or 
water supply systems located on the property securing the loan caused by 
faulty materials or improper installation.

[[Page 178]]

    (3) Serious defects in or improper installation of heating systems 
or central air conditioning.
    (4) Defects in or improper installation of safety and security 
devices, such as windows, external doors, locks, smoke detectors, 
railings, etc., as well as failure to provide or properly install 
devices to aid occupancy of dwellings by handicapped individuals, where 
required.
    (5) Defects in or improper installation of protective materials, 
such as insulation, siding, roofing material, exterior paint, etc.

[56 FR 40241, Aug. 14, 1991, as amended at 67 FR 78327, Dec. 24, 2002]



Sec. Sec.  1924.254-1924.257  [Reserved]



Sec.  1924.258  Notification of borrowers.

    FmHA or its successor agency under Public Law 103-354 will notify by 
letter all borrowers who receive Section 502 RH financial assistance for 
a newly constructed dwelling or unit of the provisions of this subpart. 
Subsequent owners of eligible dwellings will also be notified in 
accordance with this section. Borrowers will be notified within 30 days 
after the loan is closed, or within 30 days after final inspection, 
whichever is later. This notification will contain information 
concerning time frames for filing claims under this subpart. FmHA or its 
successor agency under Public Law 103-354 will also notify and advise 
borrowers of the construction defects procedure at any time construction 
defects are apparent within the statutory time frame and favorable 
results cannot be obtained from the contractor. This notification will 
be documented in the borrower's case file.



Sec.  1924.259  Handling dwelling construction complaints.

    This section describes the procedure for handling construction 
defect complaints.
    (a) Each borrower who complains about construction defects will be 
requested to make a written complaint using a format specified by FmHA 
or its successor agency under Public Law 103-354 (available in any FmHA 
or its successor agency under Public Law 103-354 office). All known 
defects will be listed. An oral complaint may be accepted if making a 
written complaint will impose a hardship on the borrower. If an oral 
complaint is made, FmHA or its successor agency under Public Law 103-354 
will notify the contractor on behalf of the borrower.
    (b) The borrower will be informed that if, after 30 calendar days, 
the defects have not been corrected or other satisfactory arrangements 
made by the contractor, the borrower should notify FmHA or its successor 
agency under Public Law 103-354 using a format specified by FmHA or its 
successor agency under Public Law 103-354 (available in any FmHA or its 
successor agency under Public Law 103-354 office).
    (c) FmHA or its successor agency under Public Law 103-354 will 
advise the contractor in writing of the borrower's complaint, the time 
and date of planned inspection by FmHA or its successor agency under 
Public Law 103-354 personnel, and request that the contractor accompany 
the inspector and borrower on a joint inspection of the property in an 
attempt to resolve the complaint.
    (d) If, prior to the planned inspection, the contractor informs FmHA 
or its successor agency under Public Law 103-354 that the alleged 
defect(s) has been or will be corrected within 30 calendar days, FmHA or 
its successor agency under Public Law 103-354 will notify the borrower.
    (e) If the case is not resolved as outlined in paragraph (d) of this 
section, FmHA or its successor agency under Public Law 103-354 will:
    (1) [Reserved]
    (2) Notify the borrower, contractor and manufacturer, if applicable, 
in writing of FmHA or its successor agency under Public Law 103-354's 
findings and who has been determined responsible for correcting the 
defect(s).
    (i) If the defects are determined to be covered under the 
contractor's warranty, FmHA or its successor agency under Public Law 
103-354 will advise the contractor that the repairs must be completed 
within 30 calendar days or other time period agreed to by the borrower, 
the contractor, and FmHA or its successor agency under Public Law 103-
354.

[[Page 179]]

    (ii) FmHA or its successor agency under Public Law 103-354 will 
further advise the contractor and/or manufacturer that if the defect(s) 
are not corrected, the Government will consider compensating the 
borrower for the costs of correcting the defect(s). In such a case, the 
contractor and/or manufacturer may be liable for costs paid by the 
Government and may be subject to suspension and/or debarment pursuant to 
subpart M of part 1940 of this chapter (available in any FmHA or its 
successor agency under Public Law 103-354 office). Even if the 
manufacturer is determined to be solely responsible for the defect, the 
contractor will still be held liable for correction of the defect.
    (3) Should a contractor refuse to correct a defect after being 
officially requested in writing to do so, FmHA or its successor agency 
under Public Law 103-354 will promptly institute formal suspension and 
debarment proceedings against the contractor (as a company and as 
individual(s)) in accordance with subpart M of part 1940 of this chapter 
(available in any FmHA or its successor agency under Public Law 103-354 
office). The contractor's failure to reply to official correspondence or 
inability to correct a defect constitutes noncompliance.
    (4) If the contractor is willing to correct legitimate defects but 
the borrower refuses to permit this, FmHA or its successor agency under 
Public Law 103-354 will document the facts in the borrower's case file. 
If the borrower chooses to file a claim for compensation for these 
defects, the circumstances of the borrower's refusal will be reviewed 
and may be sufficient grounds for disapproval of the claim.
    (f)-(h) [Reserved]



Sec.  1924.260  Handling manufactured housing (unit) construction complaints.

    When a borrower who has purchased a manufactured home (or ``unit'') 
complains about construction defects, the borrower will be instructed to 
first contact the dealer-contractor from whom the unit was purchased. 
FmHA or its successor agency under Public Law 103-354 will assist the 
borrower in obtaining assistance through the dealer-contractor's and/or 
HUD's complaint resolution process. If the dealer-contractor cannot 
resolve the complaint, the borrower should contact the appropriate State 
Administrative Agency (SAA) or HUD. If the complaint resolution process 
does not result in the correction of the defect, the borrower's 
complaint will be handled in accordance with Sec.  1924.259 of this 
subpart.



Sec.  1924.261  Handling complaints involving dwellings covered by an 
independent or insured home warranty plan.

    Borrowers with complaints about dwellings covered by an independent 
or insured home warranty plan will be instructed to first contact the 
warranty company and follow the complaint resolution process for that 
company, with the assistance of FmHA or its successor agency under 
Public Law 103-354, if needed. If the complaint is not resolved in this 
manner, it will be handled under Sec.  1924.259 of this subpart.



Sec.  1924.262  Handling complaints involving dwellings constructed 
by the self-help method.

    When a borrower whose dwelling was constructed by the self-help 
method complains about construction defects, FmHA or its successor 
agency under Public Law 103-354 will determine whether the defect is the 
result of work performed by a contractor or work performed by the 
borrower under the guidance of the self-help group. Defects which are 
determined to be the responsibility of a contractor will be handled in 
accordance with Sec.  1924.259 of this subpart. Defects determined to be 
the result of work performed by the borrower are not eligible for 
compensation under this subpart.



Sec. Sec.  1924.263-1924.264  [Reserved]



Sec.  1924.265  Eligibility for compensation for construction defects.

    (a) To be eligible for assistance under this subpart, the following 
criteria must be met:
    (1) The approval official, in consultation with the State Architect/
Engineer and/or Construction Inspector, must determine that:
    (i) The construction is defective in workmanship, material or 
equipment, or

[[Page 180]]

    (ii) The dwelling or unit has not been built in substantial 
compliance with the approved drawings and specifications, or
    (iii) The dwelling or unit does not comply with the FmHA or its 
successor agency under Public Law 103-354 construction standards in 
effect at the time the loan was approved or the conditional commitment 
was issued, or
    (iv) The property does not meet code requirements.
    (2) The claim must be for one or more of the following:
    (i) To pay for repairs;
    (ii) To compensate the owner for repairs;
    (iii) To pay emergency living or other expenses resulting from the 
defect; or
    (iv) To acquire title to property.
    (3) The dwelling or unit must be newly constructed as defined in 
Sec.  1924.253 of this subpart and financed with an insured Section 502 
RH loan.
    (4) The claim seeking compensation from FmHA or its successor agency 
under Public Law 103-354 must be filed with FmHA or its successor agency 
under Public Law 103-354 within 18 months after the date financial 
assistance is granted. Defects for which claims are filed beyond the 18-
month period must have been documented by FmHA or its successor agency 
under Public Law 103-354 in the borrower's case file or on the form 
designated by FmHA or its successor agency under Public Law 103-354 
(available in any FmHA or its successor agency under Public Law 103-354 
office), prior to expiration of the 18-month period. For loans made to 
construct a new dwelling or erect a new manufactured housing unit, 
financial assistance is granted on the date of final construction 
inspection and acceptance by the borrower and FmHA or its successor 
agency under Public Law 103-354. Claims must be submitted by completing 
the designated form (available in any FmHA or its successor agency under 
Public Law 103-354 office).
    (5) Any obligation of the contractor to correct the defect(s) under 
a contractor's warranty must have expired, or the contractor is 
responsible for making corrections under the contractor's warranty but 
is unable or unwilling to do so.
    (b) Subsequent owners of eligible dwellings or units who are also 
Section 502 borrowers may be eligible to receive compensation for 
construction defects. These owners will be notified in accordance with 
Sec.  1924.258 of this subpart. However, the claim for compensation must 
be filed in accordance with paragraph (a)(4) of this section within the 
18-month period established for the original rural housing (RH) 
borrower.



Sec.  1924.266  Purposes for which claims may be approved.

    (a) Eligible purposes. A claim may be approved to:
    (1) Pay, or reimburse the borrower for costs already paid, to repair 
major structural defects which are completed in accordance with plans 
and specifications approved by FmHA or its successor agency under Public 
Law 103-354. Repairs must be made by a reputable licensed contractor and 
a warranty covering the repairs will be issued by the contractor when 
the repairs are completed, as prescribed in subpart A of this part. 
Payment will be based on actual cost of the development and the borrower 
must provide evidence to reasonably establish the development cost. 
Workmanship and materials used in repairs must be consistent with the 
level of quality specified in the original dwelling or unit 
specifications and/or comparable to the items being replaced. Payment 
may be made:
    (i) To cover damages which are a direct result of the defect to 
permanent enhancements made, such as landscaping, completion of 
unfinished living spaces, etc., of the dwelling or unit, installation or 
set-up of the unit, or related facilities, and
    (ii) For costs approved by FmHA or its successor agency under Public 
Law 103-354 for professional reports by engineers, architects or others 
needed to determine cause of or means to repair the defect.
    (2) Reimburse the borrower for funds expended for emergency repairs. 
Emergency repairs are those repairs necessary to preserve the integrity 
of the

[[Page 181]]

structure, to prevent damage or further damage to personal property or 
fixtures in the dwelling or unit and related facilities, or to prevent 
or eliminate immediate health hazards. Receipts or other evidence of 
borrower's expenditures must be provided.
    (3) Acquire title to the property by the Government and, when 
appropriate, compensate the claimant for any loss of borrower 
contribution at the time the loan was closed. Conveyance of properties 
under this section will be handled in accordance with 7 CFR part 3550.
    (i) Before FmHA or its successor agency under Public Law 103-354 
accepts a conveyance, the borrower must attempt to sell the dwelling or 
unit in accordance with 7 CFR part 3550, if the dwelling or unit is 
considered decent, safe and sanitary as prescribed in 7 CFR part 3550. 
If the property is sold, FmHA or its successor agency under Public Law 
103-354 will:
    (A) Pay the borrower's relocation expenses, including temporary 
living expenses as prescribed in paragraph (a)(4) of this section, until 
another suitable property can be located;
    (B) Pay related sales expenses, as prescribed in 7 CFR part 3550, if 
the property is sold for less than the debt against it;
    (C) Release the borrower from personal liability for the remaining 
FmHA or its successor agency under Public Law 103-354 debt; and
    (D) Process an application for a new RH loan if the borrower so 
desires and is still eligible for FmHA or its successor agency under 
Public Law 103-354 assistance.
    (ii) If the dwelling or unit is not considered decent, safe and 
sanitary as prescribed in 7 CFR part 3550, FmHA or its successor agency 
under Public Law 103-354 should accept a voluntary conveyance of the 
property under the provisions of 7 CFR part 3550. Compensation for 
properties taken into inventory under this paragraph may not exceed the 
difference between the present market value of the security as 
established by the appraisal when the loan was made and the amount of 
the FmHA or its successor agency under Public Law 103-354 loan and any 
prior liens.
    (iii) A borrower contribution which may be compensated for under 
this paragraph may be such things as:
    (A) A borrower's land or cash contribution,
    (B) Development work done by the borrower under the self-help 
program or borrower method of construction, the cost of which was not 
included in the loan funds,
    (C) Attorney fees, abstract costs or title insurance costs actually 
paid by the claimant in connection with closing the loan.
    (4) Pay or reimburse the borrower for temporary living expenses, 
miscellaneous expenses, storage of household goods and moving expenses 
incurred as a result of the defect.
    (i) Payment under this paragraph may be made under either of the 
following circumstances:
    (A) The property is acquired by the Government in accordance with 7 
CFR part 3550 and FmHA or its successor agency under Public Law 103-354 
determines that the dwelling is not habitable and the severity of the 
defect(s) prevents the property from being repaired and made suitable as 
a permanent residence for the borrower.
    (B) The property is not acquired by the Government but FmHA or its 
successor agency under Public Law 103-354 determines that the dwelling 
is not habitable or must be vacated in order to repair the defects.
    (ii) Claims for compensation under paragraph (a)(4) of this section 
are limited as follows:
    (A) Compensation may be granted for temporary living expenses for 
not more than 45 calendar days per claim unless a longer period is 
authorized by FmHA or its successor agency under Public Law 103-354. 
Compensation will be paid for actual cost to the claimant not to exceed 
the Government per diem rate for the area where the borrower's dwelling 
or unit is located. Reimbursement may be claimed for expenses such as 
food, lodging, laundering, etc., which would not have been incurred had 
the claimant remained in the house.
    (B) Compensation may be granted for actual miscellaneous expenses 
not to exceed $500 to cover such items as utility connect and disconnect 
fees.

[[Page 182]]

    (C) Compensation may be granted for moving and storage expenses not 
to exceed $5,000 unless authorized by FmHA or its successor agency under 
Public Law 103-354 and not to exceed the actual cost of moving the 
claimant household with personal belongings a distance of not more than 
50 miles from the original residence. Compensation for storage expenses 
may not exceed that amount paid to store household furnishings for 45 
days.
    (D) A strict accounting of the use of such funds must be maintained 
by the borrower and will be verified by FmHA or its successor agency 
under Public Law 103-354.
    (5) Compensate the claimant for reasonable interest paid on loans 
obtained for the sole purpose of correcting structural defects or other 
approved purposes under this section.
    (b) Ineligible purposes. Compensation will not be granted for:
    (1) Completion of a dwelling or unit or installation of materials/
items required under the construction contract and/or specifications.
    (2) Defective items which were not completed under the contract 
method or under the conditional commitment and supported by a builder's 
warranty. Work performed under the borrower method or self-help program 
without a warranty by a responsible party is not eligible for 
compensation.
    (3) Damage caused by defective design, workmanship, or material in 
making enhancements to or remodeling the dwelling or unit or related 
facilities which were not financed or approved by FmHA or its successor 
agency under Public Law 103-354.
    (4) The loss of past, present or future wages or salary directly or 
indirectly resulting from the defect.
    (5) Treatment for physical or psychological damages including 
medical and dental claims.
    (6) Death benefits or funeral expenses.
    (7) Damages encountered as a result of war, civil disorder, flood, 
tornado, lightning, earthquake or acts of nature which the structure was 
not designed to withstand.
    (8) Damages resulting from the homeowner's negligence or failure to 
properly maintain the property.
    (9) Damage to personal property.

[56 FR 40241, Aug. 14, 1991, as amended at 67 FR 78327, Dec. 24, 2002]



Sec. Sec.  1924.267-1924.270  [Reserved]



Sec.  1924.271  Processing applications.

    An application for compensation for construction defects shall be 
submitted by the claimant to FmHA or its successor agency under Public 
Law 103-354 on the designated form (available in any FmHA or its 
successor agency under Public Law 103-354 office). The application shall 
be completed in its entirety. All structural defects and claims for 
which compensation is sought will be listed. Borrowers will be told not 
to incur any expenses for repairs or temporary living expenses, except 
for emergency situations, until funds have been allocated and the 
request has been approved under Sec.  1924.273 of this subpart.



Sec.  1924.272  [Reserved]



Sec.  1924.273  Approval or disapproval.

    (a) Claimants will be notified in writing of the decision on the 
claim within 60 days of the date the designated form (available in any 
FmHA or its successor agency under Public Law 103-354 office) is signed 
by the borrower. If the claim or any part of the claim is denied at any 
level, the claimant will be informed in writing of the reason(s) for the 
denial and advised of appeal rights in accordance with 7 CFR part 11.
    (b) [Reserved]

[56 FR 40241, Aug. 14, 1991, as amended at 67 FR 78327, Dec. 24, 2002]



Sec.  1924.274  Final inspection.

    Except for emergency repairs, all repair work must be performed in 
accordance with subpart A of this part. In all cases, FmHA or its 
successor agency under Public Law 103-354 will make a final inspection 
of the repair work performed before final payment is made for the work.



Sec.  1924.275  [Reserved]



Sec.  1924.276  Action against contractor.

    If FmHA or its successor agency under Public Law 103-354 pays for 
correction of construction defects which

[[Page 183]]

are the responsibility of the contractor, debarment proceedings will be 
initiated against the contractor in accordance with subpart M of part 
1940 of this chapter (available in any FmHA or its successor agency 
under Public Law 103-354 office), even if the contractor has gone out of 
business, declared bankruptcy, cannot be located, etc. The debarment 
will be pursued in both the contractor's company name and the principal 
parties as individuals, and any successor entities, if known. If the 
manufacturer of the defective product is determined to be solely 
responsible, no action will be taken against the contractor. In such a 
case, debarment will be initiated against the manufacturer. An 
assignment of the borrower's claim against the contractor or other party 
will be obtained if it appears to the approval officials, with any 
necessary advice from the Office of the General Counsel, that recovery 
is reasonably possible.



Sec. Sec.  1924.277-1924.299  [Reserved]



Sec.  1924.300  OMB control number.

    The reporting and recordkeeping requirements contained in this 
regulation have been approved by the Office of Management and Budget 
(OMB) and have been assigned OMB control number 0575-0082. Public 
reporting burden for this collection of information is estimated to vary 
from 15 minutes to 2 hours per response, with an average of .28 hours 
per response including time for reviewing instructions, searching 
existing data sources, gathering and maintaining the data needed, and 
completing and reviewing the collection of information. Send comments 
regarding this burden estimate or any other aspect of this collection of 
information, including suggestions for reducing this burden, to 
Department of Agriculture, Clearance Officer, OIRM, room 404-W, 
Washington, DC 20250; and to the Office of Management and Budget, 
Paperwork Reduction Project (OMB 575-0082), Washington, DC 
20503.



PART 1925_TAXES--Table of Contents




                   Subpart A_Real Estate Tax Servicing

Sec.
1925.1 General.
1925.2 Definition of tax.
1925.3 Servicing taxes.
1925.4 Servicing delinquent taxes.
1925.5-1925.50 [Reserved]

    Authority: 7 U.S.C. 1989; 42 U.S.C. 1480; 5 U.S.C. 301; 7 CFR 2.23; 
7 CFR 2.70.

    Source: 57 FR 36590, Aug. 14, 1992, unless otherwise noted.



                   Subpart A_Real Estate Tax Servicing



Sec.  1925.1  General.

    This Instruction applies to borrowers with a Farm Ownership (FO), 
Operating Loan (OL), Soil and Water (SW), Recreation Loan (RL), 
Emergency (EM), Economic Opportunity (EO), Rural Rental Housing (RRH), 
Rural Cooperative Housing (RCH), Labor Housing (LH), Softwood Timber 
(ST), and Non-Program (NP) loans secured by real estate. It also applies 
to section 502 and section 504 Rural Housing borrowers (Single Family 
Housing (SFH)) who also have a Farmer Program loan. It does not apply to 
borrowers who have a SFH loan only; those will be serviced under 7 CFR 
part 3550. Borrowers are responsible for paying taxes on the real estate 
security to the proper taxing authorities before taxes become 
delinquent. This obligation is set forth in the security instrument 
securing the loan.

[57 FR 36590, Aug. 14, 1992, as amended at 67 FR 78327, Dec. 24, 2002]



Sec.  1925.2  Definition of tax.

    For the purpose of this instruction, the word ``tax'' means all 
taxes, assessments, levies, irrigation and water charges or other 
similar obligations which are or will, on nonpayment, become a lien upon 
the real estate prior to the mortgage securing the Farmers Home 
Administration (FmHA) or its successor agency under Public Law 103-354 
loan.



Sec.  1925.3  Servicing taxes.

    (a) The County Supervisor will be responsible for ascertaining that 
all mortgaged real estate is listed properly for tax purposes.
    (b) The County Supervisor will be responsible for taking all actions 
in connection with taxes as may be necessary

[[Page 184]]

to protect the Government's security interests. Any unusual situations 
that may arise with respect to tax servicing should be referred to the 
State Office for consideration.
    (c) The County Supervisor will encourage each borrower to pay taxes 
promptly in order to avoid any penalties. Normally, this can be 
accomplished through routine servicing of loans by emphasizing the 
advantages of setting aside sufficient income to meet tax obligations 
when they become due. Taxes will be adequately budgeted for those 
borrowers with whom Form FmHA or its successor agency under Public Law 
103-354 431-2, ``Farm and Home Plan,'' is developed. Each borrower will 
be encouraged to notify the County Supervisor when he has paid his 
taxes. After the delinquent date, it will be necessary for the County 
Supervisor to determine the borrowers whose taxes are delinquent. Forms 
FmHA or its successor agency under Public Law 103-354 1905-1, 
``Management System Card-Individual,'' FmHA or its successor agency 
under Public Law 103-354 1905-5, ``Management System Card- Individual 
(Rural Housing Only),'' and FmHA or its successor agency under Public 
Law 103-354 1905-10, ``Management System Card-Association,'' will be 
used in posting servicing action on delinquent taxes.



Sec.  1925.4  Servicing delinquent taxes.

    (a) The County Supervisor will contact each borrower with a 
delinquent tax and make every practical effort to have him pay the tax 
with his own funds. He will use the Management System Card for follow-up 
of delinquent taxes. If the delinquent tax is not paid and the borrower 
comes to the office with proceeds for application on the FmHA or its 
successor agency under Public Law 103-354 account secured by the real 
estate, the County Office personnel will endeavor to get the borrower to 
use the proceeds to pay the delinquent tax. If the amount of the 
delinquent tax is less than the amount of the proposed payment, the 
difference will be applied on the FmHA or its successor agency under 
Public Law 103-354 account in accordance with the policy outlined in 
subpart A of part 1951 of this chapter.
    (b) Prior (usually about 90 days) to the time it is legally possible 
for action to be taken that will cause the borrower to lose title or 
right of possessions of the security property or the use of essential 
water, the County Supervisor will contact the borrower and definitely 
determine if he will pay the delinquent tax immediately. If the borrower 
is unable or unwilling to pay the delinquent tax with his own funds 
after every appropriate effort has been made to have him do so, the 
County Supervisor will refer to FmHA or its successor agency under 
Public Law 103-354 Instruction 2024-A and utilize the Type 60 Purchase 
Order System to pay the amount of the delinquent taxes plus the amount 
of any accrued penalty to bring taxes current.
    (1) In an exceptional case where reasons for delinquent taxes have 
been removed and planned income during the next year covers payment of 
current obligations plus delinquent taxes not vouchered, only the 
delinquent taxes will be paid that could cause the borrower to lose 
title or right of possession of security property.
    (2) If the Government is holding a mortgage other than a first 
mortgage on the property, do not initiate payment request until the 
County Supervisor has determined that (i) the prior lien holder will not 
pay the delinquent tax, (ii) the Government's security will be 
jeopardized if the delinquent tax is not paid, and (iii) the value of 
the security is sufficient to justify the advance.

[57 FR 36590, Aug. 14, 1992, as amended at 67 FR 78327, Dec. 24, 2002]



Sec. Sec.  1925.5-1925.50  [Reserved]



PART 1927_TITLE CLEARANCE AND LOAN CLOSING--Table of Contents




Subpart A [Reserved]

         Subpart B_Real Estate Title Clearance and Loan Closing

Sec.
1927.51 General.
1927.52 Definitions.
1927.53 Costs of title clearance and closing of transactions.
1927.54 Requirements for closing agents.
1927.55 Title clearance services.
1927.56 Scheduling loan closing.

[[Page 185]]

1927.57 Preparation of closing documents.
1927.58 Closing the transaction.
1927.59 Subsequent loans and transfers with assumptions.
1927.60-1927.99 [Reserved]
1927.100 OMB control number.

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.

    Source: 61 FR 11711, Mar. 22, 1996, unless otherwise noted.

Subpart A [Reserved]



         Subpart B_Real Estate Title Clearance and Loan Closing



1927.51  General.

    (a) Types of loans covered by this subpart. This subpart sets forth 
the authorities, policies, and procedures for real estate title 
clearance and closing of loans, assumptions, voluntary conveyances and 
credit sales in connection with the following types of Rural Housing 
Service (RHS) and Farm Service Agency (FSA) loans: Farm Ownership (FO), 
Nonfarm Enterprise (FO-NFE), Emergency (EM), Operating (OL), Rural 
Housing (RH), Farm Labor Housing (LH), Rural Rental Housing (RRH), Rural 
Cooperative Housing (RCH), Soil and Water (SW), Indian Land acquisition 
loans involving nontrust property, and NonProgram (NP) loans. This 
subpart does not apply to guaranteed loans.
    (b) Programs not covered by this subpart. Title clearance and 
closing for all other types of agency loans and assumptions will be 
handled as provided in the applicable program instructions or as 
provided in special authorizations from the National Office.
    (c) [Reserved]
    (d) Copies of all agency forms referenced in this regulation and the 
agency's internal administrative procedures for title clearance and loan 
closing are available upon request from the agency's State Office. Forms 
and title clearance and loan closing requirements which are specific for 
any individual state must be obtained from the agency State Office for 
that state.



1927.52  Definitions.

    Agency. The Rural Housing Service (RHS) and Farm Service Agency 
(FSA) or their successor agencies.
    Approval official. The agency employee who has been delegated the 
authority to approve, close, and service the particular kind of loan, 
will approve an attorney or title company as closing agent for the 
loans. If a loan must be approved at a higher level, the initiating 
office may approve the closing agent.
    Approved attorney. A duly licensed attorney, approved by the agency, 
who provides title opinions directly to the agency and the borrower or 
upon whose certification of title an approved title insurance company 
issues a policy of title insurance. Approved attorneys also close loans, 
assumptions, credit sales, and voluntary conveyances and disburse funds 
in connection with agency loans. Approved attorney is further defined in 
Sec.  1927.54(c).
    Approved title insurance company. A title insurance company, 
approved by the agency, (including its local representatives, employees, 
agents, and attorneys) that issues a policy of title insurance. 
Depending on the local practice, an approved title insurance company may 
also close loans, assumptions, credit sales, and voluntary conveyances 
and disburse funds in connection with agency loans. If the approved 
title insurance company does not close the loan itself, the loan closing 
functions may be performed by approved attorneys or closing agents 
authorized by the approved title insurance company.
    Borrower. The party indebted to the agency after the loan, 
assumption, or credit sale is closed.
    Certificate of title. A certified statement as to land ownership, 
based upon examination of record title.
    Closed loan. A loan is considered to be closed when the mortgage is 
filed for record and the appropriate lien has been obtained.
    Closing agent. The approved attorney or title company selected by 
the applicant and approved by the agency to provide closing services for 
the proposed loan. Unless a title insurance company also provides loan 
closing services, the term ``title company'' does not include ``title 
insurance company.''
    Closing protection letter. An agreement issued by an approved title 
insurance

[[Page 186]]

company which is an American Land Title Association (ALTA) form closing 
protection letter or which is otherwise acceptable to the agency and 
which protects the agency against damage, loss, fraud, theft, or injury 
as a result of negligence by the issuing agent, approved attorney, or 
title company when title clearance is done by means of a policy of title 
insurance. Depending on the area, closing protection letters may also be 
known as ``Insured Closing Letters,'' ``Indemnification Agreements,'' 
``Insured Closing Service Agreements,'' or ``Statements of Settlement 
Service Responsibilities.''
    Cosigner. A party who joins in the execution of a promissory note or 
assumption agreement to guarantee repayment of the debt.
    Credit sale. A sale in which the agency provides credit to the 
purchasers of agency inventory property. Title clearance and closing of 
a credit sale are the same as for an initial loan except the property is 
conveyed by quitclaim deed.
    Deed of trust. See trust deed.
    Exceptions. Exceptions include, but are not limited to, recorded 
covenants; conditions; restrictions; reservations; liens; encumbrances; 
easements; taxes and assessments; rights-of-way; leases; mineral, oil, 
gas, and geothermal rights (with or without the right of surface entry); 
timber and water rights; judgments; pending court proceedings in Federal 
and State courts (including bankruptcy); probate proceedings; and 
agreements which limit or affect the title to the property.
    Fee simple. An estate in land of which the owner has unqualified 
ownership and power of disposition.
    FSA. The Farm Service Agency, an agency of the United States 
Department of Agriculture ( and any successor agency). FSA is the 
successor agency for farm program loans of the former Farmers Home 
Administration.
    General warranty deed. A deed containing express covenants by the 
grantor or seller as to good title and right to possession.
    Indemnification agreement. An agreement that protects the agency 
against damage, loss, fraud, theft, or injury as a result of useful 
conduct or negligence on behalf of the issuing agent, approved attorney, 
or title company. This agreement may also be entitled closing protection 
letter, insured closing letter, insured closing service agreement, 
statement of settlement service responsibilities, or letters which 
provide similar protection.
    Issuing agent. An individual or entity who is authorized to issue 
title insurance for an approved title insurance company.
    Land purchase contract (contract for deed). An agreement between the 
buyer and seller of land in which the buyer has the right to possession 
and use of the land over a period of time (usually in excess of 1 year) 
and makes periodic payments of a portion of the purchase price to the 
seller. The seller retains legal title to the property until the final 
payment is made, at which time the buyer will receive a deed to the land 
vesting fee title in the buyer.
    Mortgage. Real estate security instrument which pledges land as 
security for the performance of an obligation such as repayment of a 
loan. For the purpose of this regulation the term ``mortgage'' includes 
deed of trust and deed to secure debt. A real estate mortgage or deed of 
trust form for the state in which the land to be taken as security is 
available in any agency office, and will be used to secure a mortgage to 
the agency.
    National Office. The National Headquarters Office of FSA or RHS 
depending on the loan program involved.
    OGC. The Office of the General Counsel, United States Department of 
Agriculture.
    Program regulations. The agency regulations for the particular loan 
program involved (e.g., 7 CFR part 3550 for single family housing (SFH) 
loans).
    Quitclaim deed. A transfer of the seller's interest in the title, 
without warranties or covenants. This type of deed is used by the agency 
to convey title to purchasers of inventory property.
    RHS. The Rural Housing Service, an agency of the United States 
Department of Agriculture, or its successor agency. RHS is the successor 
agency to the Rural Housing and Community Development Service (RHCDS) 
which was, in turn, the successor agency to the Farmers Home 
Administration.

[[Page 187]]

    Seller. Individual or other entity which convey ownership in real 
property to an applicant for an agency loan or to the agency itself.
    Special warranty deed. A deed containing a covenant whereby the 
grantor agrees to protect the grantee against any claims arising during 
the grantor's period of ownership.
    State Office. For FSA, this term refers to the FSA State Office. For 
RHS, this term refers to the Rural Development State Director.
    Title clearance. Examination of a title and its exceptions to assure 
the agency that the loan is legally secured and has the required 
priority.
    Title company. A company that may abstract title, act as an issuing 
agent of title insurance for a title insurance company, act as a loan 
closing agent, and perform other duties associated with real estate 
title clearance and loan closing.
    Title defects. Any exception or legal claim of ownership (through 
deed, lien, judgment, or other recorded document), on behalf of a third 
party, which would prevent the seller from conveying a marketable title 
to the entire property.
    Trust deed. A three party security instrument conveying title to 
land as security for the performance of an obligation, such as the 
repayment of a loan. For the purpose of this regulation a trust deed is 
covered by the term ``mortgage.'' A trust deed is the same as a deed of 
trust.
    Voluntary conveyance. A method of liquidation by which title to 
agency security is transferred by a borrower to the agency by deed in 
lieu of foreclosure.
    Warranty deed. A deed in which the grantor warrants that he or she 
has the right to convey the property, the title is free from 
encumbrances, and the grantor shall take further action necessary to 
perfect or defend the title.

[61 FR 11711, Mar. 22, 1996, as amended at 67 FR 78327, Dec. 24, 2002]



Sec.  1927.53  Costs of title clearance and closing of transactions.

    The borrower or the seller, or both, in compliance with the terms of 
the sales contract or option will be responsible for payment of all 
costs of title clearance and closing of the transaction and will arrange 
for payment before the transaction is closed. These costs will include 
any costs of abstracts of title, land surveys, attorney's fees, owner's 
and lender's policies of title insurance, obtaining curative material, 
notary fees, documentary stamps, recording costs, tax monitoring 
service, and other expenses necessary to complete the transaction.



Sec.  1927.54  Requirements for closing agents.

    (a) Form of title certification. State Offices are directed to 
require title insurance for all loan closings unless the agency 
determines that the use of title insurance is not available or is 
economically not feasible for the type of loan involved or the area of 
the state where the loan will be closed. If title insurance is used, 
State Offices are authorized to require a closing protection letter 
issued by an approved title insurance company to cover the closing 
agent, if available. A closing protection letter need not be furnished 
when the closing is conducted by the title insurance company.
    (b) Approval of closing agent. An attorney or title company may act 
as a closing agent and close agency real estate loans, provide necessary 
title clearance, and perform such other duties as required in this 
subpart. A closing agent will be responsible for closing agency loans 
and disbursing both agency loan funds and funds provided by the borrower 
in connection with the agency loan so as to obtain title and security 
position as required by the agency. The closing agent must be covered by 
a fidelity bond which will protect the agency unless a closing 
protection letter is provided to the agency. The borrower will select 
the approved closing agent. If title clearance is by an attorney's 
opinion, the agency will approve the attorney who will perform the 
closing in accordance with paragraph (c) of this section. The attorney 
will be approved after submitting a certification acceptable to the 
agency. If title certification is by means of a policy of title 
insurance, the title company which will issue the policy must have been 
approved in accordance with paragraph (d) of this section. A closing

[[Page 188]]

agent's delay in providing services without justification in connection 
with agency loans may be a basis for not approving the closing agent in 
future cases.
    (c) Approval of attorneys. Any attorney selected by an applicant, 
who will be providing title clearance where the certificate of title 
will be an attorney's opinion, must submit an agency form certifying to 
professional liability insurance coverage. If the attorney is also the 
closing agent, fidelity coverage for the attorney and any employee 
having access to the funds must be provided. The agency will determine 
the appropriate level of such insurance. Required insurance will, as a 
minimum, cover the amount of the loan to be closed. The agency will 
approve the form stipulating the bond coverage. The agency will approve 
any attorney who is duly licensed to practice law in the state where the 
real estate security is located and who complies with the bonding and 
insurance requirements in this section. If the certification of title 
will be by means of title insurance, any attorney or closing agent 
designated as an approved attorney or closing agent by the approved 
title insurance company which will issue the policy of title insurance 
will be acceptable, and when covered by a closing protection letter, 
will not be required to obtain professional liability insurance or a 
fidelity bond. Each approved title insurance company may provide a 
master list of their approved attorneys that are covered by its closing 
protection letters to the State Office and, in such cases the attorneys 
are approved for closings for that title insurance company. Delay in 
providing closing services without justification may be a basis for not 
approving the attorney in future cases.
    (d) Approval of title companies. A title company acting as a closing 
agent, or as an issuing agent for a title insurance company, must be 
covered by a title insurance company closing protection letter or submit 
an agency form certifying to fidelity coverage to cover all employees 
having access to the loan funds. The agency will determine the 
appropriate level of such coverage and will approve the form stipulating 
the bond coverage. Delay in providing closing services without 
justification may be a basis for not approving the company in future 
cases. Each approved title insurance company may provide a master list 
of their approved title companies that are covered by its closing 
protection letter to the State Office and, in such cases the title 
companies on the list are approved for closings for that title insurance 
company.
    (e) Approval of title insurance companies. The agency will approve 
any title insurance company which issues policies of title insurance in 
the State where the security property is located if:
    (1) The form of the owner's and lender's policies of title insurance 
(including required endorsements) to be used in closing agency loans are 
acceptable to the agency, and will contain only standard types of 
exceptions and exclusions approved in advance by the agency;
    (2) The title insurance company is licensed to do business in the 
state (if a license is required); and
    (3) The title insurance company is regulated by a State Insurance 
Commission, or similar regulator, or if not, the title insurance company 
submits copies of audited financial statements, or other approved 
financial statements satisfactory to the agency, which show that the 
company has the financial ability to cover losses arising out of its 
activities as a title insurance company and under any closing protection 
letters issued by the title insurance company.
    (4) Delay in providing services without justification may be a basis 
for not approving the company.
    (f) [Reserved]
    (g) Conflict of interest. A closing agent who has, or whose spouse, 
children, or business associates have, a financial interest in the real 
estate which will secure the agency debt shall not be involved in the 
title clearance or loan closing process. Financial interest includes 
having either an equity, creditor, or debtor interest in any 
corporation, trust, or partnership with a financial interest in the real 
estate which will secure the agency debt.
    (h) Debarment or suspension. No attorney, title company, title 
insurance company, or closing agent, currently

[[Page 189]]

debarred or suspended from participating in Federal programs, may 
participate in any aspect of the agency loan closing and title clearance 
process.
    (i) Special provisions. Closing agents are responsible for having 
current knowledge of the requirements of State law in connection with 
loan closing and title clearance and should advise the agency of any 
changes in State law which necessitate changes in the agency's State 
mortgage forms and State Supplements.
    (j) [Reserved]



Sec.  1927.55  Title clearance services.

    (a) Responsibilities of closing agents. Services to be provided to 
the agency and the borrower by a closing agent in connection with the 
transaction vary depending on whether a title insurance policy or title 
opinion is being furnished. The closing agent is expected to perform 
these services without unnecessary delay.
    (b) [Reserved]
    (c) Ordering title services. Application for title examination or 
insurance will be made by the borrower to a title company or attorney. 
The lender's policy will be for at least the amount of the loan. The 
United States of America will be named as the insured lender.
    (d) Use of title opinion. If a title opinion will be issued, a title 
examination will include searches of all relevant land title and other 
records, so as to express an opinion as to the title of the property and 
the steps necessary to obtain the appropriate title and security 
position to issue a title opinion as required by this subpart. The 
closing agent or approved attorney will determine:
    (1) The legal description and all owners of the real property;
    (2) Whether there are any exceptions affecting the property and 
advise the approval official and borrower of the nature and effect of 
outstanding interests or exceptions, prior sales of part of the 
property, judgments, or interests to assist in determining which 
exceptions must be corrected in order for the borrowers to obtain good 
and marketable title of record in accordance with prevailing title 
examination standards, and for the agency to obtain a valid lien of the 
required priority;
    (3) Whether there are outstanding Federal, State, or local tax 
claims (including taxes which under State law may become a lien superior 
to a previously attaching mortgage lien) or homeowner's association 
assessment liens;
    (4) Whether outstanding judgments of record, bankruptcy, insolvency, 
divorce, or probate proceedings involving any part of the property, 
whether already owned by the borrower, or to be acquired by assumption 
or with loan funds, or involving the borrower or the seller exist;
    (5) If a water right is to be included in the security for the loan, 
and if so, the full legal description of the water right;
    (6) In addition to paragraph(d)(2) of this section, if wetlands 
easements or other conservation easements have been placed on the 
property;
    (7) What measures are required for preparing, obtaining, or 
approving curative material, conveyances, and security instruments, and
    (8) That sufficient copies of these interests and exceptions are 
provided as requested by the approval official.
    (e) Use of title insurance. When title insurance is to be obtained, 
the approval official will be furnished with a title insurance binder 
disclosing any defects in, exceptions to, and encumbrances against, the 
title, the conditions to be met to make the title insurable and in the 
condition required by the agency, and the curative or other actions to 
be taken before closing of the transaction. The binder must include a 
commitment to issue a lender policy in an amount at least equal the 
amount of the loan, except in instances where there may be an 
outstanding owner's policy in favor of the borrower. Not withstanding 
the provisions of this section, the instance of an assumption without a 
subsequent loan, the existing policy may be continued if the coverage 
meets or exceeds the assumption balance and the title company agrees in 
writing to extend coverage in full force and effect.
    (f) [Reserved]

[[Page 190]]



Sec.  1927.56  Scheduling loan closing.

    The agency, in coordination with the closing agent, will arrange a 
loan closing and send loan closing instructions, on an agency form to 
the closing agent when the agency determines that the exceptions shown 
on the preliminary title opinion or title insurance binder will not 
adversely affect the suitability, security value, or successful 
operation of the property and all other agency conditions to closing 
have been satisfied.



Sec.  1927.57  Preparation of closing documents.

    (a) Preparation of deeds. The closing agent, unless prohibited by 
law, will prepare, complete, or approve documents, including deeds, 
necessary for title clearance and closing of the transaction and provide 
the agency with the policy of title insurance or title opinion providing 
the lien priority required by the agency and subject only to exceptions 
approved by the agency. Agency forms will be used when required by this 
part.
    (1)-(2) [Reserved]
    (b) Preparation of mortgages. The closing agent will insure that all 
mortgages are properly prepared, completed, executed, and filed for 
record. Where applicable, the mortgages should recite that it is a 
purchase money mortgage. The following requirements will be observed in 
preparing agency morgages:
    (1)-(8) [Reserved]
    (9) Alteration of mortgage form. An agency mortgage form may be 
altered pursuant to a State Supplement having prior approval of the 
National Office, or in a special case, to comply with the terms of loan 
approval prescribed in accordance with program instructions. No other 
alterations in the printed mortgage forms will be made without prior 
approval of the National Office. Any changes made by deletion, 
substitution, or addition (excluding filling in blanks) will be 
initialed in the margin by all persons signing the mortgage.
    (10) [Reserved]
    (11) Mortgages on leasehold estates. When the agency security 
interest is a leasehold estate, unless State law or State Supplement 
otherwise provides, the real estate mortgage or deed of trust form, 
available in any agency office, will be modified as follows:
    (i) In the space provided on the mortgage for the description of the 
real property security, the leasehold estate and the land covered by the 
lease must be described. The following language must be used unless 
modified by a State Supplement:

    All of borrower's right, title, and interest in and to a leasehold 
estate for an original term of ---- years, commencing on ------, 19 ----
, created and established by and between ------ as lessor and owner and 
---- as lessee, including any extensions and renewals thereof, a copy of 
which lease was recorded or filed in book ----, page ----, as instrument 
number ----, in the Office of the (e.g., County Clerk), for the 
aforesaid county and State and covering the following real property: --
----.

    (ii) Immediately preceding the covenant starting with the words 
``should default,'' the following covenant will be added:

    ( ) Borrower covenants and agrees to pay when due all rents and any 
and all other charges required by said lease, to comply with all other 
requirements of said lease, and not to surrender or relinquish, without 
the Government's prior written consent, any of borrower's right, title, 
or interest in or to said leasehold estate or under said lease while 
this mortgage remains of record.

    (12) Mortgages on land purchase contract. When the agency security 
interest is on a borrower's interest in a land purchase contract, OGC 
will provide language used to modify agency forms.
    (13) [Reserved]
    (c) [Reserved]
    (d) Preparation of protective instruments. The closing agent will 
properly prepare, complete, and approve releases and curative documents 
necessary for title clearance and closing, in recordable form and record 
them if required.
    (1) Prior lienholder's agreement. If any liens (other than agency 
liens or tax liens to local governmental authorities) or security 
agreements (hereafter called ``liens''), with priority over the agency 
mortgage will remain against the real property securing the loan, the 
lienholders must execute, in recordable form, agreements containing all 
of the following provisions unless prior approval for different 
provisions has been obtained from the National Office:

[[Page 191]]

    (i) The prior lienholder shall agree not to declare the lien in 
default or accelerate the indebtedness secured by the prior lien for a 
specific period of time after notice to the agency. The agreement must:
    (A) Provide that the specified period of time will not commence 
until the lienholder gives written notice of the borrower's default and 
the prior lienholder's intention to accelerate the indebtedness to the 
agency office servicing the loan,
    (B) Include the address of the agency servicing office,
    (C) Give the agency the option to cure any monetary default by 
paying the amount of the borrower's delinquent payments to the prior 
lienholder, or pay the obligation in full and have the lien assigned to 
the agency, and
    (D) Provide that the prior lienholder will not declare the lien in 
default for any nonmonetary reason if the agency commences liquidation 
proceedings against the property and thereafter acquires the property.
    (ii) When the prior lien secures future advances, including the 
lienholder's costs for borrower liquidation or bankruptcy, which under 
State law have priority over the mortgage being taken (or an agency 
mortgage already held), the prior lienholder shall agree not to make 
advances for purposes other than taxes, insurance or payments on other 
prior liens without written consent of the agency.
    (iii) The prior lienholder shall consent to the agency making (or 
transferring) the loan and taking (or retaining) the related mortgage if 
the prior lien instrument prohibits a loan or mortgage (or transfer) 
without the prior lienholder's consent.
    (iv) The prior lienholder shall consent to the agency transferring 
the property subject to the prior lien after the agency has obtained 
title to the property either by foreclosure or voluntary conveyance if 
the prior lien instrument prohibits such transfer without the prior 
lienholder's consent.
    (2)-(3) [Reserved]
    (4) Agreement by holder of seller's interest under land purchase 
contract. If the buyer's interest in the security property is that of a 
buyer under a land purchase contract, it will be necessary for the 
seller to execute, in recordable form, an agreement containing all of 
the following provisions:
    (i) The seller shall agree not to sell or voluntarily transfer the 
seller's interest under the land purchase contract without the prior 
written consent of the State Office.
    (ii) The seller shall agree not to encumber or cause any liens to be 
levied against the property.
    (iii) The seller shall agree not to commence or take any action to 
accelerate, forfeit, or foreclose the buyer's interest in the security 
property until a specified period of time after notifying the State 
Office of intent to do so. This period of time will be 90 days unless a 
State Supplement provides otherwise. The agreement shall give the agency 
the option to cure any monetary default by paying the amount of the 
buyer's delinquent payments to the seller, or paying the seller in full 
and having the contract assigned to the agency.
    (iv) The seller shall consent to the agency making the loan and 
taking a security interest in the borrower's interest under the land 
purchase contract as security for the agency loan.
    (v) The seller shall agree not to take any actions to foreclose or 
forfeit the interest of the buyer under the land purchase contract 
because the agency has acquired the buyer's interest under the land 
purchase contract by foreclosure or voluntary conveyance, or because the 
agency has subsequently sold or assigned the buyer's interest to a third 
party who will assume the buyer's obligations under the land purchase 
contract.
    (vi) When the agency acquires a buyer's interest under a land 
purchase contract by foreclosure or deed in lieu of foreclosure, the 
agency will not be deemed to have assumed any of the buyer's obligations 
under the contract, provided that the failure of the agency to perform 
any such obligations while it holds the buyer's interest is a ground to 
commence an action to terminate the land purchase contract.
    (5)-(6) [Reserved]
    (e) [Reserved]

[[Page 192]]



1927.58  Closing the transaction.

    The closing agent will cooperate with the approval official, 
borrower, seller, and other necessary parties to arrange the time and 
place of closing. The transaction may be closed when the agency 
determines that the agency requirements for the loan have been satisfied 
and the closing agent or approved attorney can issue or cause to be 
issued a policy of title insurance or final title opinion as of the date 
of closing showing title vested as required by the agency, the lien of 
the agency's mortgage in the priority required by the agency, and title 
to the mortgaged property subject only to those exceptions approved in 
writing by the agency. The loan will be considered closed when the 
mortgage is filed for record and the required lien is obtained.
    (a) Disbursement of loan funds. When the closing agent indicates 
that the conditions necessary to close the loan have been met, loan 
funds will be forwarded to the closing agent. Loan funds will not be 
disbursed prior to filing of the mortgage for record; however, when 
necessary, loan funds may be placed in escrow before the mortgage is 
filed for record and disbursed after it is filed. No development funds 
will be kept in escrow by the closing agent after loan closing, unless 
approved by the agency. Loan funds for the payment of a lien may be 
disbursed only upon the recording of a discharge, satisfaction, or 
release of prior lien interests (or assignment where necessary to 
protect the interests of the agency).
    (b) Title examination and liens or claims against borrowers. If 
there are exceptions or recorded items which have arisen since the 
preliminary title opinion, the transaction will not be closed until 
these entries have been cleared of record or approved by the agency. The 
closing agent will advise the approval official of the nature of such 
intervening instruments and the effect they may have on obtaining a 
valid mortgage of the priority required or the title insurance policy to 
be issued.
    (c) Taxes and assessments. The closing agent will determine if all 
taxes and assessments against the property which are due and payable are 
paid at or before the time of loan closing. If the seller and the 
borrower have agreed to prorate any taxes or assessments which are not 
yet due and payable for the year in which the closing of the transaction 
takes place, the seller's proportionate share of the taxes and 
assessments will be deducted from the proceeds to be paid to seller at 
closing and will be added to the amount required to be paid by borrower 
at closing. Appropriate prorations as agreed upon between the borrower 
and seller may also be made for taxes paid by the seller which are 
applicable to a period after the closing date, and for common area 
maintenance fees, prepaid rentals, insurance (unless the borrower is to 
obtain a new policy of insurance), and growing crops.
    (d) Affidavit regarding work of improvement.--(1) Execution by 
borrower. If required by State Supplement, the closing agent will 
require that an affidavit regarding work of improvement, provided by the 
agency, be completed and executed when a loan is being made to a 
borrower who already owns the real estate to be mortgaged. This 
affidavit will be executed by the borrower at closing.
    (2) Execution by seller. If required by State Supplement, the 
closing agent will require that an affidavit regarding work of 
improvement, provided by the agency, be completed and executed 
(including acknowledgment) by the seller when the agency is making a 
loan to a borrower to enable the borrower to acquire the property 
(including transfers). This affidavit will be executed by the seller at 
closing.
    (3) Legal insufficiency of affidavit form. If the agency affidavit 
regarding work of improvement is not legally sufficient in a particular 
State, a State form approved by OGC will be used. A similar form that 
may be required by a title insurance company may be substituted for the 
agency form.
    (4) Recording. The affidavit will not be recorded unless the closing 
agent deems it necessary and State law permits.
    (5) Delay in closing. The loan will not be closed if, at the loan 
closing, the seller (in a sale transaction) or the borrower (in a 
nonpurchase money loan situation) indicates that construction, repair, 
or remodeling has been commenced or completed on the property,

[[Page 193]]

or related materials or services have been delivered to or performed on 
the property within the time limit specified in the affidavit, unless a 
State Supplement provides otherwise. The closing agent will notify the 
approval official, who will determine if the work of improvement could 
result in a lien prior to the agency lien. The State Office will, with 
the advice and concurrence of OGC, provide in a State Supplement the 
period of time to be used in completing the affidavit.
    (e)-(f) [Reserved]
    (g) Return of loan documents to approval official after loan 
closing. Within 1 day after loan closing, the closing agent will return 
completed and executed copies of the loan closing instructions, the 
executed original promissory note, and all other documents required for 
loan closing (except the mortgage), to the approval official. If the 
recorded mortgage is customarily returned to the borrower or closing 
agent after recording, then it must be forwarded to the approval 
official immediately.
    (h) Final title opinion or title insurance policy. As soon as 
possible after the transaction has been closed.
    (1) Final title opinion. The attorney will issue a final title 
opinion to the agency and the borrower on a form provided by the agency. 
Issuance of the final title opinion should not be held up pending the 
return of recorded instruments. If it is not possible for the final 
title opinion to show the book and page of recording of the agency 
security instrument, the words ``and is recorded'' in the final title 
opinion form provided by the agency office, may be deleted and the blank 
space completed to show the filing office and the filing instrument 
number, if available. Attached to the final title opinion will be 
required documents then available, including any which the approval 
official has furnished to the attorney which were not previously 
returned. The attorney will ensure that all recorded instruments are 
forwarded or delivered to the proper parties after recording. The 
certification of title will be forwarded for a voluntary conveyance.
    (2) Title insurance policy. The closing agent will send or deliver 
the title insurance policy, with the United States listed as mortgage 
holder, to the approval official. The policy will be subject only to 
standard exceptions and those outstanding encumbrances, and exceptions, 
approved by the approval official. If an owner's policy of title 
insurance is requested, the closing agent will send or deliver it to the 
borrower. The closing agent will ensure that all recorded instruments 
are delivered or sent to the proper parties after recording.
    (3) [Reserved]
    (i) Other services of the closing agent. (1) The closing agent will 
assist the approval official in preparing, completing, obtaining 
execution and acknowledgment, and recording the required documents when 
necessary. The closing agent will keep the approval official advised as 
to the progress of title clearance and preparation of material for 
closing the transaction.
    (2) The closing agent will provide services for deeds in lieu of 
foreclosure as set forth in Sec.  1927.62 of this subpart, and Sec.  
1955.10 of subpart A of part 1955 of this chapter.



Sec.  1927.59  Subsequent loans and transfers with assumptions.

    Title services and closing for subsequent loans to an existing 
borrower will be done in accordance with previous instructions in this 
subpart, except that:
    (a) Loans closed using title insurance or title opinions. (1) Title 
insurance or title opinions will be obtained unless:
    (i) The cost of title services is excessive in relationship to the 
size of the loan,
    (ii) The agency currently has a first mortgage security interest,
    (iii) The applicant has sufficient income to service the additional 
loan,
    (iv) The borrower is current on the existing agency loan, and
    (v) The best mortgage obtainable adequately protects the agency 
security interests.
    (2) Title insurance or a final title opinion will not be obtained 
for a subsequent Section 504 loan where the previous Section 504 loan 
was unsecured or secured for less than $7,500 and the outstanding debt 
amount plus the new loan is less than $7,500.

[[Page 194]]

    (3) Loans closed using a new lender title insurance policy:
    (i) Will cover the entire real property which is to secure the loan, 
including the real property already owned and any additional real 
property being acquired by the borrower with the loan proceeds.
    (ii) Will cover the entire amount of any subsequent loan plus the 
amount of any existing loan being refinanced (if the existing loan is 
not being refinanced, the new lender policy will insure only the amount 
of the subsequent loan).
    (b) Title services required in connection with assumptions. These 
regulations are contained in subparts A and B of part 1965 of this 
chapter and 7 CFR part 3550 as appropriate for the loan type.

[61 FR 11711, Mar. 22, 1996, as amended at 67 FR 78327, Dec. 24, 2002]



Sec. Sec.  1927.60-1927.99  [Reserved]



Sec.  1927.100  OMB control number.

    The reporting requirements contained in this regulation have been 
approved by the Office of Management and Budget and have been assigned 
OMB control number 0575-0147. Public reporting burden for this 
collection of information is estimated to vary from 5 minutes to 1.5 
hours per response, with an average of .38 hours per response, including 
time for reviewing instructions, searching existing data sources, 
gathering and maintaining the data needed, and completing and reviewing 
the collection of information. Send comments regarding this burden 
estimate or any other aspect of this collection of information, 
including suggestions for reducing this burden, to Department of 
Agriculture, Clearance Officer, OIRM, Ag Box 7630, Washington, DC 20250; 
and to the Office of Management and Budget, Paperwork Reduction Project 
(OMB 0575-0147), Washington, DC 20503. You are not required to 
respond to the collection of information unless it displays a currently 
valid OMB control number.



PART 1930_GENERAL--Table of Contents




Subparts A-B [Reserved]

    Subpart C_Management and Supervision of Multiple Family Housing 
                     Borrowers and Grant Recipients

Sec.
1930.101 General.
1930.102 Definitions.
1930.103 Nondiscrimination assurance.
1930.104 Reasonable accommodations.
1930.105 Objective of management and supervision.
1930.106 Project operations.
1930.107 [Reserved]
1930.108 Extent of borrower management.
1930.109 Extent of FmHA or its successor agency under Public Law 103-354 
          supervision.
1930.110 Methods of supervision.
1930.111-1930.112 [Reserved]
1930.113 Borrower responsibilities.
1930.114-1930.116 [Reserved]
1930.117 Agency responsibilities
1930.118 [Reserved]
1930.119 Supervisory visits, compliance review, and inspections.
1930.120-1930.121 [Reserved]
1930.122 Borrower accounting methods, management reporting and audits.
1930.123 Annual review.
1930.124 [Reserved]
1930.125 Changing project designation.
1930.126-1930.127 [Reserved]
1930.128 LH grants.
1930.129 RHS loans.
1930.130-1930.133 [Reserved]
1930.134 FmHA or its successor agency under Public Law 103-354 office 
          records.
1930.135-1930.136 [Reserved]
1930.137 State Supplements, guides, forms and other issuances.
1930.138 Supervisory actions for distressed projects.
1930.139-1930.140 [Reserved]
1930.141 Materials to be provided borrower/applicant.
1930.142 Complaints regarding discrimination in use and occupancy of 
          MFH.
1930.143 Delegation of responsibility and authority.
1930.144 Exception authority.
1930.145 Appeals.
1930.146-1930.149 [Reserved]
1930.150 OMB control number.

Exhibit A to Subpart C--Steps for Farmers Home Administration (FmHA) or 
          Its Successor Agency Under Public Law 103-354 Personnel in 
          Conducting Annual Review of Multiple Housing Operations

[[Page 195]]

Exhibit A-1 to Subpart C--Audit Report Review Guide
Exhibit B to Subpart C--Multiple Housing Management Handbook
Exhibit B-1 to Subpart C--Management Plan Requirements for Farmers Home 
          Administration or Its Successor Agency Under Public Law 103-
          354 Financed Multiple Family Housing (MFH) Projects
Exhibit B-2 to Subpart C--Requirements for Management Agreements
Exhibit B-3 to Subpart C--Sample Management Agreement for Farmers Home 
          Administration or Its Successor Agency Under Public Law 103-
          354 Financed Multiple Family Housing (MFH) Projects
Exhibit B-4 to Subpart C--Outline for Prospective Management Agent of a 
          Multiple Family Rental or Labor Housing Project
Exhibit B-5 to Subpart C--Outline for Owner Who Proposes Owner-
          Management of a Multiple Family Rental or Labor Housing 
          Project
Exhibit B-6 to Subpart C--Monthly and Quarterly Project Management 
          Reports
Exhibit B-7 to Subpart C--Annual Project Management Reports
Exhibit B-8 to Subpart C--Miscellaneous Project Management Reports or 
          Submittals
Exhibit B-9 to Subpart C--Notice of Authorization To Withdraw and Use 
          Reserve Funds
Exhibit B-10 to Subpart C--Reserve Account Tally
Exhibit B-11 to Subpart C--Equal Housing Opportunity Logotype (Required 
          for Project Sign)
Exhibit B-12 to Subpart C--Farmers Home Administration or Its Successor 
          Agency Under Public Law 103-354 Logotype (Optional for Project 
          Sign)
Exhibit B-13 to Subpart C--International Symbol of Accessibility 
          (Required for Handicap Parking Space and Along Handicap 
          Accessibility Route)
Exhibit B-14 to Subpart C--Sample Waiting List
Exhibit C to Subpart C--Rental and Occupancy Charge and/or Utility 
          Allowance Changes
Exhibit C-1 to Subpart C--Notice to Tenants (Members) of Proposed Rent 
          (Occupancy Charge) and Utility Allowance Change
Exhibit C-2 to Subpart C--Notice of Approved Rent (Occupancy Charge) and 
          Utility Allowance Change
Exhibit D to Subpart C--Energy Audit
Exhibit D-1 to Subpart C--Calculation of Financial Impact (Energy Audit)
Exhibit E to Subpart C--Rental Assistance Program
Exhibit F to Subpart C--Farmers Home Administration or Its Successor 
          Agency Under Public Law 103-354 Multiple Family Housing 
          Supervisory Visit--Pre-Visit Worksheet
Exhibit F-1 to Subpart C--Suggested Random Sampling Technique for Tenant 
          Reviews
Exhibit F-2 to Subpart C--Suggested Format for a Pre-Visit Tenant 
          Contact Letter
Exhibit G to Subpart C--Farmers Home Administration or Its Successor 
          Agency Under Public Law 103-354 Multiple Family Housing 
          Supervisory Visit--Summary of Findings
Exhibit G-1 to Subpart C--Farmers Home Administration or Its Successor 
          Agency Under Public Law 103-354 Multiple Family Housing 
          Supervisory Visit--Tenant File Review
Exhibit G-2 to Subpart C--Farmers Home Administration or Its Successor 
          Agency Under Public Law 103-354 Multiple Family Housing 
          Supervisory Visit--Tenant Interview and Unit Review
Exhibit H to Subpart C--Interest Credits on Insured Rural Rental Housing 
          and Rural Cooperative Housing Loans
Exhibit H to Subpart C-1--Example of Interest Credit Determination for 
          Rural Rental Housing or Rural Cooperative Housing Projects 
          (Plan II)
Exhibit I to Subpart C--Rural Rental Housing Loans and the Housing and 
          Urban Development Section 8 Rental Certificate and Rental 
          Voucher Programs (Existing Units)
Exhibit J to Subpart C--Management of Congregate Housing and Group Homes

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 16 U.S.C. 1005.

Subparts A-B [Reserved]



    Subpart C_Management and Supervision of Multiple Family Housing 
                     Borrowers and Grant Recipients

    Source: 58 FR 40868, July 30, 1993, unless otherwise noted.



Sec. 1930.101  General.

    This subpart prescribes the policies, authorizations, and procedures 
for management and supervision of all of the following Farmers Home 
Administration (FmHA) or its successor agency under Public Law 103-354 
Multiple Family Housing (MFH) loan and grant recipients:
    (a) Farm Labor Housing (LH).

[[Page 196]]

    (b) Rural Rental Housing (RRH) including congregate housing.
    (c) Rural Cooperative Housing (RCH).
    (d) Rural Housing Site Loans (RHS).
    (e) Special provisions and exceptions.
    (1) Unless otherwise specified in this subpart and except for 
exhibit C of this subpart, individual type RRH borrowers who were not 
required by program regulation to execute a loan agreement are exempted 
from the requirements of this subpart as long as the borrower is not in 
default of any program requirement, security instrument, payment, or any 
other agreement with FmHA or its successor agency under Public Law 103-
354. However, these borrowers must provide evidence of tenant income 
eligibility by properly completing Form FmHA or its successor agency 
under Public Law 103-354 1944-8, ``Tenant Certification,'' for each 
tenant as required by the Forms Manual Insert (FMI), except in LH 
situations where the tenant is not paying rent.
    (2) The State Director may require any borrower determined to be in 
default of any program requirement, security instrument, payment, or 
other agreement with FmHA or its successor agency under Public Law 103-
354, or when otherwise failing to meet the program objectives, to comply 
with any appropriate section of this subpart to assure that the loan 
objectives are met.
    (3) For RHS borrowers, the following sections of this subpart do not 
apply: Sec. Sec. 1930.108, 1930.122, and 1930.141.



Sec. 1930.102  Definitions.

    Acceptable tolerance. For the purpose of this subpart, acceptable 
tolerance means actual financial activity as expressed in numeric terms 
that is operating within plus or minus 5 percent of projected or 
forecasted estimates.
    Adviser to the board. An individual or organization who will work 
with and provide guidance to a cooperative board of directors.
    Borrowers. Borrowers means owners who may be individuals, 
partnerships, cooperatives, trusts, public agencies, private or public 
corporations, and other organizations who have received a loan or grant 
from FmHA or its successor agency under Public Law 103-354 for LH, RRH, 
RCH, or RHS purposes.
    Consumer cooperative. A corporation which is organized under the 
cooperative laws of a State or Federally recognized Indian tribe; will 
own and operate the housing on a cooperative basis solely for the 
benefit of the members; will operate at cost and, for this purpose, any 
patronage refunds accruing to members in accordance with subpart E of 
part 1944 of this chapter will not be considered gains or profits; and 
will restrict membership in the housing to eligible persons and, to any 
extent the cooperative and FmHA or its successor agency under Public Law 
103-354 permit, to others in special circumstances.
    FmHA or its successor agency under Public Law 103-354. FmHA or its 
successor agency under Public Law 103-354 means the United States of 
America acting through the Farmers Home Administration or its successor 
agency under Public Law 103-354 or FmHA or its successor agency under 
Public Law 103-354's predecessor agencies.
    Governing body. Governing body means those elected or appointed 
officials of an organization or public agency type borrower responsible 
for the operations of the project.
    Management. Management is the overall direction given by the 
borrower or the borrower's agent to meet the needs of the tenants or 
members, maintain the project, and provide sound and economical project 
operation.
    Member. A person who has executed documents pertaining to a 
cooperative housing type of living arrangement and has made a commitment 
to upholding the cooperative concept.
    Occupancy agreement. A contract setting forth the rights and 
obligations of the cooperative member and the cooperative, including the 
amount of the monthly occupancy charge and the other terms under which 
the member will occupy the housing.
    Office of the General Counsel (OGC). OGC means the Regional 
Attorney, Associate Regional Attorney, or Assistant Regional Attorney in 
the field office of the Office of the General Counsel of the United 
States Department of Agriculture (USDA).

[[Page 197]]

    Office of Inspector General (OIG). OIG means the Office of Inspector 
General of the USDA.
    Patronage capital refund. Amounts received by the cooperative in 
excess of operating costs and expenses which have been assigned to 
members' patronage capital accounts each year of membership in the 
cooperative.
    Project. A project is the total number of rental housing units that 
are operated under one management plan with one loan agreement/
resolution. (The rental units may have been developed originally with 
separate initial loans and separate loan agreements/resolutions, now 
consolidated into one operational project under Sec. 1965.68 of subpart 
B of part 1965 of this chapter.)
    Servicing Office. The FmHA or its successor agency under Public Law 
103-354 office designated by the State Director to service MFH accounts.
    Servicing Official. The individual who by job description or other 
qualification is designated by the State Director with delegated 
responsibility to service MFH accounts.
    State Director. For the purpose of this subpart, State Director also 
includes the Rural Housing Chief, Multiple Family Housing Coordinator, 
Rural Housing Specialist, and other qualified State staff when delegated 
responsibilities under this subpart according to Sec. 1930.143 and the 
provisions of FmHA or its successor agency under Public Law 103-354 
Instruction 2006-F, (available in any FmHA or its successor agency under 
Public Law 103-354 office).
    Supervision. Supervision includes the broad scope of FmHA or its 
successor agency under Public Law 103-354 guidance available to assist 
borrowers to carry out the objectives of the loan and comply with FmHA 
or its successor agency under Public Law 103-354 regulations.



Sec.  1930.103  Nondiscrimination assurance.

    All management and supervision actions described in this subpart 
will be conducted without regard to race, color, religion, sex, familial 
status, national origin, age, or handicap. Borrowers, tenants and 
cooperative members must possess the legal capacity to enter into a 
legal contract. The provisions of subpart E of part 1901 of this chapter 
enforcing title VI of the Civil Rights Act of 1964, as amended, along 
with other similarly worded statutes will be complied with.



Sec.  1930.104  Reasonable accommodations.

    (a) It shall be unlawful for any person to refuse to make reasonable 
accommodations in rules, policies, practices, or services when such 
accommodations would afford an individual with a handicap equal 
opportunity to use or continue to use and enjoy a dwelling unit, 
including public and common use areas.
    (b) It shall be unlawful for any person to refuse to permit, at the 
expense of an individual with a handicap, reasonable modifications of an 
existing unit, occupied or to be occupied by an individual with a 
handicap, if the proposed modifications may be necessary to afford the 
individual with a handicap full enjoyment of the dwelling unit.



Sec.  1930.105  Objective of management and supervision.

    (a) The primary objective of management and supervision is to 
provide effective supervision to each borrower to accomplish the 
objectives of the loan or grant.
    (b) To provide effective supervision, FmHA or its successor agency 
under Public Law 103-354 will assure that the borrower's management plan 
accomplishes the following:
    (1) Provide proper and efficient management policies as prescribed 
in exhibit B of this subpart.
    (2) Comply with loan and grant agreements.
    (3) Repay loans on schedule.
    (4) Maintain security property.
    (5) Protect the interests of FmHA or its successor agency under 
Public Law 103-354.
    (6) Operate facilities according to State and local laws and 
regulations.
    (7) Maintain accounts and records.
    (8) Submit reports and audits.
    (9) Process rent and occupancy charge changes according to exhibit C 
of this subpart.
    (10) Operate the facilities according to applicable Civil Rights 
laws, Title VI of the Civil Rights Act of 1964, Title

[[Page 198]]

VIII of the Civil Rights Act of 1968, Section 504 of the Rehabilitation 
Act of 1973, Executive Order 11246, the Americans with Disabilities Act 
of 1990, and the Age Discrimination Act of 1975.
    (11) Maintain facilities and premises that are free of illegal 
controlled substances.
    (12) Collect and remit any occupancy surcharges as applicable.

[58 FR 40868, July 30, 1993, as amended at 62 FR 25065, May 7, 1997]



Sec.  1930.106  Project operations.

    Project operations shall be conducted to meet the actual needs and 
necessary expenses of the property or for any other purpose authorized 
under Agency regulations. Whoever willfully uses, or authorizes the use, 
of any part of the rents, assets, proceeds, income, or other funds 
derived from such property for unauthorized purposes is subject to 
penalty. This includes an owner, agent, or manager, or person who is 
otherwise in custody, control, or possession of property that is 
security for a multifamily housing loan. Those violating these 
provisions are subject to penalties set out under Agency regulations and 
the law. Under law (42 U.S.C. 1484 and 1485) federal penalties 
consisting of fines of not more than $250,000 or imprisonment of not 
more than five years, or both, may be imposed for operating a project in 
a manner inconsistent with the provisions of this section.

[62 FR 25065, May 7, 1997]



Sec.  1930.107  [Reserved]



Sec.  1930.108  Extent of borrower management.

    According to exhibit B of this subpart, the borrower and/or the 
borrower's agent will develop a management plan for each project that 
describes the scope of property management needed to maintain program 
objectives. When the management is from other than the borrower, a 
management agreement will be used to define the responsibilities of the 
management agent. Initial, modified and/or replacement management 
agreements will be approved by authorized FmHA or its successor agency 
under Public Law 103-354 officials. A sample management agreement is 
provided in exhibit B-3 of this subpart.



Sec.  1930.109  Extent of FmHA or its successor agency under Public Law 
103-354 supervision.

    The objective of FmHA or its successor agency under Public Law 103-
354 supervision is to guide and advise borrowers and their designated 
representatives in their quest to meet MFH program objectives, goals, 
and obligations, not to direct the borrower's activity. Supervision does 
not relieve borrowers of their own responsibilities and obligations. 
Supervision starts with the first contact by the applicant and continues 
as long as any loan balance remains outstanding. In the case of a grant, 
supervision continues until the requirements of the grant agreement have 
been fulfilled. Supervision of borrowers is a primary responsibility of 
the Servicing Official; however, additional supervision and guidance 
will be given by the State Director and/or other appropriate members of 
the State Office staff. Security servicing actions will be handled 
according to subpart B of part 1965 of this chapter.



Sec.  1930.110  Methods of supervision.

    Supervisory methods used by FmHA or its successor agency under 
Public Law 103-354 employees include organizational and development 
planning; property management planning; affirmative marketing; 
construction conferences; long-term, annual, and other periodic planning 
and evaluation; accounts, budgets, and records inspections and guidance; 
project inspections; attendance at membership and governing body 
meetings; periodic group meetings with borrowers; analysis of 
accounting, budgets, and audit reports; guidance by memorandums; and 
similar activities. Supervision of cooperative borrowers will include 
coordination with the adviser to the board. Supervision of grant-only 
recipients will consist of at least the reviews and inspections outlined 
in Sec.  1930.119 of this subpart.
    (a) Applicants. Prior to loan or grant closing, supervision will 
largely be conducted during conferences and meetings with prospective 
borrowers and their various representatives such as

[[Page 199]]

applicant's attorney, architect, property manager, etc. Examples of 
supervision include:
    (1) Organizational meetings to discuss needs, services available, 
owner obligations, and to establish organizational committees.
    (2) Preapplication and application conferences.
    (3) Preconstruction conferences to reach an understanding regarding 
responsibilities and the manner in which development will be performed. 
The applicant at this point should be made fully aware of the 
responsibilities detailed in Sec.  1930.103 of this subpart.
    (4) Preloan and/or grant closing conferences to review requirements 
of the loan resolution or agreement, closing requirements, and 
management plan and to establish responsibilities for the operation of 
the project. The applicant at this point should be made fully aware of 
the responsibilities entailed in Sec.  1930.103 of this subpart.
    (5) Preoccupancy conferences to review the management plan, 
marketing plan, and the general readiness of project facilities, 
recordkeeping systems, renting or occupancy procedures, and personnel 
assignments to begin project operation. This conference will be 
conducted according to Sec.  1944.235(h) of subpart E of part 1944 of 
this chapter.
    (b) Borrowers who have yet to demonstrate their ability and 
borrowers with problems. When the borrower is establishing its 
operations, or when borrowers are delinquent, or have other 
difficulties, supervisory guidance will include:
    (1) Implementation and/or review for compliance with the management 
plan.
    (2) Establishment and maintenance of a financial recordkeeping and 
reporting system.
    (3) Compliance with the requirements of the loan agreement or loan 
resolution.
    (4) Review of annual audit and budget requirements.
    (5) Any other supervision that may be necessary to assure effective 
and successful operation of the project.
    (6) A requirement that the borrower contract with a management firm 
with proven background and/or experience in property management. In the 
case of cooperative housing, this stipulation will apply only when it 
has been determined that the cooperative is unable to manage itself.
    (c) Borrowers who have demonstrated ability. Supervision will 
consist of at least an annual review of budgets and other management 
reports according to Sec.  1930.122, and a triennial supervisory visit 
according to Sec.  1930.119 of this subpart when the borrower is:
    (1) Successful in completing a first full fiscal year of operation.
    (2) Current with loan payments.
    (3) In compliance with other loan or grant requirements.
    (4) Maintaining the security in a satisfactory manner.
    (5) Otherwise progressing satisfactorily.



Sec. Sec.  1930.111-1930.112  [Reserved]



Sec.  1930.113  Borrower responsibilities.

    Borrower responsibilities are described in paragraph III of exhibit 
B of this subpart.



Sec. Sec.  1930.114-1930.116  [Reserved]



Sec.  1930.117  Agency responsibilities.

    Effective supervision requires FmHA or its successor agency under 
Public Law 103-354 employees to be familiar with the various types of 
borrowers and their management plan; to communicate effectively with 
borrowers and their management agent, when applicable; and to provide 
guidance in the operation and management of MFH projects.
    (a) Servicing Official. Servicing Officials are responsible for 
effective borrower supervision. Servicing Officials will:
    (1) Organize their work and the work of their staffs in order that 
time is used effectively in providing borrower supervision and place 
emphasis on supervisory visits and review of borrower management 
reports.
    (2) Emphasize to the borrower and/or the borrower's management agent 
that they, not FmHA or its successor agency under Public Law 103-354, 
are responsible for managing the project, planning and following budgets 
within acceptable tolerance, collecting rents or occupancy charges, 
repaying the

[[Page 200]]

loan on schedule, budgeting for adequate project operations and 
maintenance; and for compliance with any loan or grant agreement or 
resolution, State laws, and other FmHA or its successor agency under 
Public Law 103-354 requirements.
    (3) Monitor all provisions or conditions of the FmHA or its 
successor agency under Public Law 103-354 approval documents to ensure 
that they are fully complied with throughout the life of the project.
    (4) Monitor the borrowers' compliance with FmHA or its successor 
agency under Public Law 103-354 regulations concerning real property 
tax, insurance, bonding, security, budgeting, and reporting 
requirements.
    (5) Systematically monitor response to OIG report findings at 
specific intervals and/or during routine supervisory visits, compliance 
reviews, and physical inspections.
    (6) Assure that borrower financing statements are continued and not 
allowed to lapse.
    (7) Have each borrower designate a representative to serve as its 
contact source for Agency communication on project related matters.
    (8) Become familiar with the borrower's bylaws or other rules and 
regulations when necessary to assure compliance with FmHA or its 
successor agency under Public Law 103-354 program civil rights and Fair 
Housing Act requirements.
    (9) Provide borrower governing bodies with suggestions for 
information distribution that may be helpful in keeping the membership 
in touch with activities to increase and maintain membership interest.
    (10) Provide informed advice and guidance to borrowers as needed.
    (11) Identify problem borrower accounts and initiate servicing plans 
including workout agreements with the borrower according to exhibit F of 
subpart B of part 1965 of this chapter.
    (12) Gather, maintain, analyze, and distribute a database of actual 
MFH operation and maintenance expense for determination of expense 
reasonableness that reflects variables of project operation and 
characteristics.
    (13) Avoid doing any of the following:
    (i) Try to run the borrower's business.
    (ii) Take charge of the borrower's meetings.
    (iii) Attempt to supervise the borrower only through its attorney, 
architect, or management agent.
    (iv) Presume that projects without adverse complaints do not require 
monitoring and/or supervision by FmHA or its successor agency under 
Public Law 103-354.
    (b) State Director. State Directors will:
    (1) Coordinate and direct supervisory activities related to 
borrowers and perform other functions as prescribed by this subpart.
    (2) Provide guidance and leadership to assure that the State staff 
and Servicing staff thoroughly understand and carry out their 
responsibilities.
    (3) Develop and conduct training programs necessary to assure that 
FmHA or its successor agency under Public Law 103-354 personnel are kept 
up-to-date regarding the most effective supervisory methods, that the 
proper time is allotted to supervision, and that borrowers receive 
adequate supervision and financial counseling.
    (4) Establish and maintain a system to monitor followup to findings 
in OIG reports, supervisory visits, compliance reviews, physical 
inspections, or other factual sources.
    (5) Maintain necessary liaison with the OGC.
    (6) Maintain necessary liaison with State and local authorities, 
agencies, and other organizations. For example, in the case of projects 
benefiting the elderly, it is essential that liaison be maintained with 
the aging network such as State and Area Agencies on Aging to assure 
that available support services are offered to or accessible by the 
tenants.
    (7) Maintain and update State Office records for effective program 
supervision and evaluation.
    (8) Assist the Servicing Official in developing a realistic plan to 
resolve project operational problems.
    (c) State staff. State staff members who are designated by the State 
Director as MFH Servicing Officials responsible for supervision of 
borrowers covered by this subpart will:

[[Page 201]]

    (1) Continuously monitor supervisory and account servicing 
activities and borrower status to assure that each project is receiving 
timely and effective supervision.
    (2) Train staff to effectively perform the required supervisory and 
account servicing activities, and to provide informed guidance in sound 
operation and management policies. The assistance of the aging network 
such as State and Area Agencies on Aging should be sought in connection 
with training which pertains to the management of services to the 
elderly.
    (3) Post review closing of loans and grants to determine that they 
have been properly closed.
    (4) Visit a sufficient number of projects to assure that proper 
supervision and account servicing is being provided.
    (5) Assemble, analyze, and distribute a statewide database of actual 
MFH operation and maintenance costs for determination of cost 
reasonableness that reflects variable characteristics of project 
operation.



Sec.  1930.118  [Reserved]



Sec.  1930.119  Supervisory visits, compliance reviews, and inspections.

    (a) Purpose. Servicing Officials and other FmHA or its successor 
agency under Public Law 103-354 authorized persons will visit the MFH 
project site, including the management office, as necessary to 
accomplish the objectives of the loan or grant. Following are the major 
purposes for which visits may be made:
    (1) To assist with satisfactory development of the project.
    (2) To evaulate the management program of the project pursuant to 
exhibit B of this subpart, such as:
    (i) Adherence to the management plan.
    (ii) Compliance with the management agreement when applicable.
    (iii) To review compliance with the Affirmative Fair Housing 
Marketing Plan and/or the Equal Opportunity requirements of title VI of 
the Civil Rights Acts of 1964, the Civil Rights Act of 1968 as amended 
by the Fair Housing Amendments Act of 1988, section 504 of the 
Rehabilitation Act of 1973, and the Age Discrimination Act of 1975.
    (3) To review borrower records and verify required compliance and 
information, such as:
    (i) Tenant or member eligibility.
    (ii) Tenant or member income.
    (iii) Tenant or member selection criteria.
    (iv) Waiting lists.
    (v) Rental or occupancy rates are in accordance with an FmHA or its 
successor agency under Public Law 103-354 approved budget.
    (vi) Other necessary items.
    (4) To inspect and ascertain proper maintenance and assure 
protection of the security for the FmHA or its successor agency under 
Public Law 103-354 loan.
    (5) To determine if the project is being operated according to the 
approved budget.
    (6) To determine that borrower and/or borrower's managment agent is 
fully complying with all provisions and conditions of the approval 
document regarding site development and use restrictions.
    (7) In the case of all LH borrowers, including on-farm LH, to 
determine that the housing is serving domestic farm laborers, as defined 
by paragraph II of exhibit B of this subpart, and that the LH housing 
provided is decent, safe, and sanitary.
    (b) Frequency and standards. Visits will be made as follows:
    (1) Supervisory visits will be made as needed to assure compliance 
with FmHA or its successor agency under Public Law 103-354 policies and 
objectives. A Servicing staff person or other FmHA or its successor 
agency under Public Law 103-354 authorized person will perform a post 
rent-up or occupancy visit before the end of the first 90 days of 
operation; and a thorough supervisory visit no later than 12 months 
following the post occupancy visit, and at least every 36 months 
thereafter at each project.
    (i) More frequent visits to delinquent or problem projects, 
irrespective of loan type, should be scheduled as needed.
    (ii) In the case of borrowers with on-farm LH unit(s) or LH 
borrowers providing seasonal farm labor housing,

[[Page 202]]

such visits should be made during the season of occupancy and preferably 
during an annual farm visit.
    (iii) Planned visits will be included in the monthly work calendar.
    (iv) The visit shall be conducted with the borrower and/or the 
borrower's designated representative.
    (v) Exhibits F, F-1, F-2, G, G-1, and G-2 of this subpart should be 
used to assist in the preparation, completion, and followup of visits.
    (vi) For small rental projects consisting of only a few units 
(usually 1 to 3), the degree of completion of exhibits F, G, G-1 and G-2 
may be minimized. Supervisory visits to such projects are required only 
once every three years and should concentrate on tenant eligibility, 
income and adjustments to income verification, maintenance, insurance 
coverage, and status of loan payments.
    (2) The Servicing Official or other FmHA or its successor agency 
under Public Law 103-354 authorized person will conduct an inspection of 
each project at least once every 36 months with the borrower, site 
manager, or designated representative present.
    (i) This inspection may be made simultaneously with a supervisory 
visit scheduled in accordance with this section.
    (ii) The results of the inspection will be documented on HUD Form 
9822, ``Report of Physical Condition and Estimate of Repair Costs,'' or 
a similar form for the same purpose may be used for this inspection.
    (iii) Based on the Servicing person's knowledge, without further 
research, the estimated repair need and cost columns of the form will be 
completed during the inspection visit.
    (c) Preparation. The person planning to make the visit and 
inspection will review the most recent quarterly or annual reports, the 
running records, correspondence, and other Servicing Office records to 
be fully aware of the supervisory needs of the project. This awareness 
should be developed into an informal visit plan and include, but not be 
limited to such things as; payment status, subsidy status, due dates of 
taxes and insurance, adequacy of fidelity coverage, and any known 
maintenance problems.
    (d) Notice of visit or inspection. The management agent, or when 
applicable, the owner should receive a written notice of the scheduled 
visit or inspection from the Servicing Office 30 days before the event 
to insure that needed records and staff are available (see Guide Letter 
1930-2 for borrower notification.)
    (e) Conducting visit or inspection. The person making the visit or 
inspection should spend sufficient time at the project to accomplish the 
visit plan and any additional needs that are observed or brought out by 
the tenants, members, or management staff.
    (f) Recording, reporting and followup. The preparation notes and 
results of each visit should be recorded on exhibits F, G, G-1 and G-2 
of this subpart and filed in the borrower's servicing file. A letter 
highlighting any needed followup actions and a copy of the completed 
supervisory visit checklist will be directed to the management agent 
and/or the borrower within 30 days after the visit. Followup will 
continue through resolution of any problems. Any major problems with the 
project will be reported in writing to the State Director with 
recommendations for corrective action. Exhibit A to subpart A of part 
1955 of this chapter or Form FmHA or its successor agency under Public 
Law 103-354 1955-2, ``Report on Real Estate Problem Case,'' may be used 
as appropriate.
    (g) Compliance reviews. As authorized State or Servicing staff 
member or other FmHA or its successor agency under Public Law 103-354 
authorized person will complete the Civil Rights and Fair Housing review 
requirements according to subpart E of part 1901 of this chapter. If 
initial rent-up or occupancy has not occurred by the time of initial 
review, a subsequent review will be due one year following initial 
occupancy and then every 36 months thereafter or in accordance with 
subpart E of part 1901 of this chapter.



Sec. Sec.  1930.120-1930.121  [Reserved]



Sec.  1930.122  Borrower accounting methods, management reporting and audits.

    It is the objective of FmHA or its successor agency under Public Law 
103-

[[Page 203]]

354 that borrowers will maintain accounts and records necessary to 
conduct their operation successfully and from which they may accurately 
report operational results to FmHA or its successor agency under Public 
Law 103-354 for review, and otherwise comply with the terms of their 
loan agreements with the Agency. Borrower accounts and records will be 
kept or made available in a location within reasonable access for 
inspection, review, and copying by representatives of FmHA or its 
successor agency under Public Law 103-354 or other agencies of the U.S. 
Department of Agriculture authorized by the Department.
    (a) Accounting methods and records--(1) Method of accounting and 
financial statements. Borrowers may choose a cash or accrual method of 
accounting, bookkeeping, and budget preparation as described in their 
project management plan, unless otherwise specified in a work-out plan 
as part of a servicing action. Balance sheets or statements of financial 
condition may be prepared reflecting the same accounting method, except 
that the accrual method of reporting financial condition will be used 
where the borrower is required to submit an annual audit.
    (2) Approval requirement. Before loan closing or start of 
construction, whichever is first, each borrower shall incorporate a 
description of its method of accounting, bookkeeping, budget 
preparation, and reporting of financial condition and, when applicable, 
plans for auditing, in the project management plan that must be approved 
by FmHA or its successor agency under Public Law 103-354.
    (3) Records. Form FmHA or its successor agency under Public Law 103-
354 1930-5, ``Bookkeeping System-Small Borrower,'' may be used by small 
organizations as a method of recording and maintaining accounting 
transactions. Automated systems may be used if they meet the conditions 
of paragraph XVI of exhibit B of this subpart.
    (4) Record retention. Each borrower shall retain all financial 
records, books, and supporting material for 3 years after the issuance 
of the audit reports and financial statements. Upon request, this 
material will be made available to FmHA or its successor agency under 
Public Law 103-354, the OIG, the Comptroller General, or to their 
representatives.
    (b) Management reports and review processes. The objective of 
management reports and review processes is to furnish the management and 
FmHA or its successor agency under Public Law 103-354 with a means of 
evaluating prior decisions and to serve as a basis for planning future 
operations and financial conditions. Timely reports and their review 
furnish necessary information to make sound management decisions. All 
reports will relate only to the FmHA or its successor agency under 
Public Law 103-354 financed project and borrower entity. Separate 
reports will be prepared and submitted for each project owned by the 
same borrower. Forms necessary in making the required reports may be 
requested from FmHA or its successor agency under Public Law 103-354. 
The various review processes described in this paragraph are illustrated 
at Sec.  1930.123(i) of this chapter.
    (1) Annual budget and utility allowance--(i) Objective. It is the 
objective of FmHA or its successor agency under Public Law 103-354 that 
project budgets and/or utility allowances be prepared, reviewed, and 
approved in such manner and timing that the approved budget and/or 
utility allowance, including any authorized changes to same, become 
effective on the beginning of a fiscal year of project operation.
    (ii) Documents. (A) The annual project budget will be prepared on 
Form FmHA or its successor agency under Public Law 103-354 1930-7, 
``Multiple Family Housing Project Budget,'' by the borrower or its agent 
following the instructions on the form. It will reflect budget planning 
for a 12 month fiscal year. Figures in the ``actual'' column will 
reflect at least 9 months of actual fiscal year activity and no more 
than 3 months of estimated activity for the balance of the same fiscal 
year based on recent actual experience.
    (B) When tenants pay their own utilities, the housing allowance for 
utilities and other public services will be prepared on exhibit A-6 to 
subpart E of part 1944 of this chapter. Exhibit A-6 will be prepared by 
the borrower or its agent following instructions attached

[[Page 204]]

to the exhibit and will be submitted to FmHA or its successor agency 
under Public Law 103-354 together with Form FmHA or its successor agency 
under Public Law 103-354 1930-7 with justification to either retain or 
change the utility allowance.
    (iii) Supporting data. Any data, justification, or other 
documentation required by the instructions for preparation of Form FmHA 
or its successor agency under Public Law 103-354 1930-7 and exhibit A-6 
to subpart E of part 1944 of this chapter, or otherwise required by the 
Servicing Official on an individual case basis, shall be ttached to the 
respective document when submitted to the Servicing Office.
    (iv) Due date. The borrower can submit the necessary documents as 
soon as 9 months of current fiscal year actuals are available, but in 
sufficient time to meet the objective stated in (b)(1)(i) of this 
section. The Servicing Official needs 15 to 30 days to review project 
budgets and utility allowances when no changes of rents, occupancy 
charges, or utility allowances are needed. When such changes are needed, 
the borrower needs to submit documents to allow sufficient time for 
review and proper notice of change to tenants or members.
    (v) FmHA or its successor agency under Public Law 103-354 review. 
Form FmHA or its successor agency under Public Law 103-354 1930-7 and 
exhibit A-6 to subpart E of part 1944 of this chapter and any attachment 
will be reviewed by the Servicing Office as part of the rental or 
occupancy charge/utility allowance change review and/or annual review 
process.
    (2) Rental or occupancy charge budget and/or utility allowance 
change--(i) Objective. It is the objective of FmHA or its successor 
agency under Public Law 103-354 that changes to project rental or 
occupancy charges and/or utility allowances be incorporated into the 
annual budget review and planning process in such manner and timing that 
authorized changes become effective at the beginning of a fiscal year of 
project operation.
    (ii) Documents. When a rental or occupancy charge and/or utility 
allowance change is proposed, the borrower or its agent will prepare and 
submit Form FmHA or its successor agency under Public Law 103-354 1930-7 
and exhibit A-6 to subpart E of part 1944 of this chapter and any 
supporting attachments following the instructions for either document.
    (iii) Standards and timing. (A) The policies and procedures 
governing rental or occupancy charge and/or utility allowance change are 
contained in exhibit C of this subpart, (available in any FmHA or its 
successor agency under Public Law 103-354 office or the ``Borrower 
Handbook'' made up of selected exhibits of this subpart and parts of 
this chapter).
    (B) To meet the projected effective date of change, the necessary 
documents need to be received by the Servicing Official at least 75 days 
ahead of the effective date of change to allow FmHA or its successor 
agency under Public Law 103-354 review to authorize a 60 day notice to 
tenants or members of an impending change. The ``actual'' column of Form 
FmHA or its successor agency under Public Law 103-354 1930-7 shall 
contain actual data for the fiscal year to date plus the projection of 
expected data for the remainder of the fiscal year. This projection 
should cover a period not exceeding 90 days. The same supporting data 
standards of paragraph (b)(1)(iii) of this section will apply.
    (C) Should the borrower need to request a rental or occupancy charge 
and/or utility allowance change at some time other than described in 
paragraph (b)(2)(iii)(B) of this section, e.g., mid-fiscal year, Form 
FmHA or its successor agency under Public Law 103-354 1930-7 shall 
reflect the project's financial needs for the next 12 months of 
operation and the ``actual'' column shall reflect the most recent 12 
months of actual data. The previous fiscal year's audit report, or Form 
FmHA or its successor agency under Public Law 103-354 1930-8, ``Multiple 
Family Housing Borrower Balance Sheet,'' as appropriate, shall be 
submitted with the change request if it was not previously submitted to 
the Servicing Office.
    (iv) FmHA or its successor agency under Public Law 103-354 review. 
Exhibit C of this subpart shall govern FmHA or its successor agency 
under Public Law 103-354 review of the borrower's request

[[Page 205]]

for rental or occupancy charge and/or utility allowance change.
    (3) Quarterly report--(i) Objective. The objective of FmHA or its 
successor agency under Public Law 103-354 is for quarterly reports to 
provide a monitoring means for borrowers and FmHA or its successor 
agency under Public Law 103-354 to mutually check a borrower's progress 
in achieving program objectives and when applicable, meeting servicing 
goals.
    (ii) Document. Form FmHA or its successor agency under Public Law 
103-354 1930-7 will be used by borrowers to prepare the quarterly 
report.
    (iii) Standards. Form FmHA or its successor agency under Public Law 
103-354 1930-7 will be completed following the instructions on the form 
for preparation of a quarterly report. The quarterly report shall be 
required upon commencement of any of the following situations:
    (A) Start up of initial occupancy after completion of new 
construction or substantial rehabilitation.
    (B) Reamortization, transfer of an existing project loan or a 100 
percent membership change.
    (C) Failure to make a scheduled loan payment, failure to maintain 
required transfers to the reserve account, or failure to maintain 
reserve accounts at authorized current levels.
    (D) Existence of reasons stated in paragraph (b)(3)(iv)(B) of this 
section when quarterly reports will suffice in place of monthly reports.
    (iv) Frequency and discontinuance--(A) Quarterly reports. Quarterly 
reports shall be prepared and submitted for each quarter year at least 
through the first year of operation for any situation described in 
paragraph (b)(3)(iii) of this section and each quarter year thereafter 
for new or existing projects until discontinuance is authorized by the 
Servicing Official. The Official will evaluate the following in reaching 
a decision to discontinue:
    (1) An adequate accounting system is functioning properly, is kept 
current, and the most recent required annual financial reports are 
complete and have been submitted to the Servicing Office.
    (2) Project loan payments to FmHA or its successor agency under 
Public Law 103-354 are on schedule.
    (3) The project reserve account is ahead or on schedule, allowing 
for authorized expenditures or authorized reduction in funding as set 
forth in an approved servicing plan or budget.
    (4) The annual review has been completed by the Servicing Office and 
the annual audit, or verification of review when appropriate, has been 
found acceptable.
    (5) The Servicing Official has inspected the project, reviewed 
project operations, and found them acceptable. When this and the 
preceding determinations are made, a letter of discontinuance of the 
quarterly report shall be sent to the borrower or its agent with a copy 
sent to the State Director.
    (B) Monthly reports. Preparation and submission of the reports 
described in this paragraph may be required monthly at the option of the 
Servicing Official, rather than quarterly, when warranted in unusual 
situations.
    (1) This requirement may be invoked when determined essential by the 
Servicing Official as part of a servicing plan made in accordance with 
exhibit F of subpart B of part 1965 of this chapter (available in any 
FmHA or its successor agency under Public Law 103-354 office).
    (2) Reasons for invoking the reporting requirement on a monthly 
basis may include, but not be limited to, factors such as apparent 
violations of policy or reporting practices, audit findings, sudden 
increases of vacancy and/or accounts payable or receivables, or other 
evidence of weak financial condition.
    (v) Due date. Quarterly (or monthly) reports shall be due in the 
FmHA or its successor agency under Public Law 103-354 Servicing Office 
by the 20th day of the month immediately following the close of the 
respective reporting period.
    (vi) FmHA or its successor agency under Public Law 103-354 review. 
(A) The Servicing Official will review the reports for year-to-date 
status of project operations. When reports reveal actual data that 
exceeds acceptable tolerance from a forecasted budget SUBTOTAL item, or 
vacancies and accounts receivable and/or payable are increasing, the 
Servicing Official will initiate verbal

[[Page 206]]

and/or written dialogue with the borrower for further resolution of 
problems or to otherwise achieve acceptable progress.
    (B) The Servicing Official will complete the FmHA or its successor 
agency under Public Law 103-354 review and forward the borrower's report 
and any related documentation to the State Director by the 30th day of 
the month following close of the reporting period.
    (C) If the borrower fails to submit its report by the due date, this 
fact will be reported to the State Director by the 30th day of the month 
following the close of the reporting period: otherwise, the Servicing 
Office will complete its review of a submitted report no later than 10 
calendar days following receipt of the borrower's report.
    (4) Annual audit reports and verifications of review--(i) Documents 
and general standards--(A) Annual audit report. An audit report will be 
in the format as prepared by a Certified Public Accountant (CPA) or 
Licensed Public Accountant (LPA), provided the LPA was licensed on or 
before December 31, 1970.
    (1) All audits are to be performed in accordance with generally 
accepted government auditing standards, as set forth in ``Government 
Auditing Standards'', established by the Comptroller General of the 
United States, and any subsequent revisions (this publication is 
commonly referred to as the ``Yellow Book'' or ``General Accounting 
Office Standards''). In addition, the audits are also to be performed in 
accordance with applicable portions of various Office of Management and 
Budget (OMB) Circulars, Departmental Regulations, parts 3015 and 3016 of 
chapter XXX of title 7, and the FmHA or its successor agency under 
Public Law 103-354 Audit Program as specified in separate sections of 
this subpart.
    (2) An audit report is required for any project with 25 or more 
units unless the State Director or Servicing Official determines that a 
project with 24 or fewer units requires an audit for reasons of good 
cause. Such reasons include, but are not limited to, situations where 
project records are incomplete or inaccurate, or it appears that the 
borrower has not adequately accounted for project funds, or where the 
borrower's operation consists of multiple projects where each project is 
24 or fewer units (with subsidiary reports prepared for each project).
    Note: The State Director or Servicing Official may require that the 
accounts of RHS borrowers be audited if the loan exceeds the 2-year 
repayment term.
    (3) The project audit report should cover the borrower entity and 
the expense for preparation of the audit report may include the 
auditor's preparation of any Internal Revenue Service (IRS) required 
borrower entity reports, i.e., Schedule K1 (IRS Form 1065), ``Partner's 
Share of Income, Credits, Deductions, etc.''.
    (4) The CPA or LPA auditor who prepares the audit report may not be 
an individual or organization that is associated with the borrower in 
any manner, other than the performance of the audit review and 
preparation of the project audit report and required IRS reports, that 
creates an identity of interest or possible conflict of interest (as 
described in paragraph V B of exhibit B of this subpart). For example, 
the CPA or LPA auditor may not be an employee of the borrower or an 
employee of any officer of the organization, nor be an employee of any 
member, stockholder, partner, principal, or have any ownership or other 
interest in the borrower organization.
    (5) The State Director or Servicing Official may authorize the 
initial audit report to cover a period up to 18 months for new projects 
whose first operating year does not exceed 6 months.
    (6) The State Director may also make an exception to the CPA or LPA 
audit requirement for not more than one successive year in a specific 
case providing: The borrower submits a written request; the FmHA or its 
successor agency under Public Law 103-354 approved budget for the 
project includes a typical and reasonable fee for the audit but the 
negotiated cost of an audit would increase the monthly per unit rental 
rate by more than $4.00; and the required reports, including a CPA or 
LPA prepared audit, were properly submitted for the prior year's project 
operations.
    (B) Verification of review. Form FmHA or its successor agency under 
Public Law 103-354 1930-8 will be prepared by a

[[Page 207]]

competent person qualified by education and/or experience who has no 
identity of interest or possible conflict of interest with the borrower 
or its principals. However, in the case of a nonprofit institution, the 
verification of review may be made by a committee of the membership but 
may not include any officer, director or employee of the borrower.
    (1) Form FmHA or its successor agency under Public Law 103-354 1930-
8 will be used for the verification of review of project accounts and 
the review verifier will also review the actual data on Form FmHA or its 
successor agency under Public Law 103-354 1930-7 for projects with 24 or 
fewer units unless the requirements of paragraph (b)(4)(i)(A)(1) of this 
section are invoked by the State Director or Servicing Official.
    (2) The State Director or Servicing Official may authorize the 
initial verification of review to cover a period of up to 18 months for 
a new project whose first operating year was less than 6 months.
    (C) Project operating budget actuals. An annual report of actuals 
for the full operating year will be submitted by the borrower, or its 
agent, using Form FmHA or its successor agency under Public Law 103-354 
1930-7. The report will reflect the actual income and expenses for the 
project for the borrower's 12 month operating year. The report will be 
submitted with the annual audit report or Form FmHA or its successor 
agency under Public Law 103-354 1930-8, as appropriate.
    (D) Form FmHA or its successor agency under Public Law 103-354 1930-
10, ``Annual Multiple Family Housing Project Review.'' When the annual 
audit report or verification of review is received by the Servicing 
Office, parts II C and D of Form FmHA or its successor agency under 
Public Law 103-354 1930-10 may be prefilled to the extent possible to 
record previous year status as reported in the audit report or 
verification of review. The Form FmHA or its successor agency under 
Public Law 103-354 1930-10 will be completed later as described in Sec.  
1930.123 (e)(2) and (i) of this subpart.
    (E) Fraud, abuse, and illegal acts. If the review verifier becomes 
aware of any indication of fraud, abuse or illegal acts in FmHA or its 
successor agency under Public Law 103-354 financed projects, prompt 
written notice shall be given to the appropriate USDA OIG Regional 
Inspector General and the Servicing Official.
    (ii) Specific standards--(A) State and local governments and Indian 
tribes. These organizations are to be audited in accordance with this 
subpart, subpart I of 7 CFR part 3015, and OMB Circular A-128, with 
copies of the audit being forwarded by the borrower to the Servicing 
Official and the appropriate Federal cognizant agency, if applicable. 
For guidance in meeting these requirements, the auditor may refer to the 
American Institute of Certified Public Accountants Audit and Accounting 
Guide for ``Audits of State and Local Governmental Units.'' The term 
``Federal financial assistance'' used herein shall mean Federal loan 
and/or grant funds received by the borrower, but not rental subsidies.
    (1) Cognizant agency. (i) ``Cognizant agency'' means the Federal 
agency assigned by OMB Circular A-128. Within USDA, the USDA OIG shall 
fulfill cognizant agency responsibilities.
    (ii) Cognizant agency assignments. Smaller borrowers not assigned a 
cognizant agency by OMB should contact the Federal agency that provided 
the most funds. When USDA is designated as the cognizant agency or when 
it has been determined by the borrower that FmHA or its successor agency 
under Public Law 103-354 provided the major portion of Federal financial 
assistance, the appropriate USDA OIG Regional Inspector General shall be 
contacted.
    (2) Audit standards. It is not intended that audits required by this 
subpart be separate and apart from audits performed in accordance with 
State and local laws. To the extent feasible, the audit work should be 
done in conjunction with those audits.
    (i) State and local governments and Indian tribes that receive 
$100,000 or more a year in Federal financial assistance shall have an 
audit made in accordance with OMB Circular A-128.
    (ii) State and local governments and Indian tribes that receive 
between $25,000 and $100,000 a year in Federal financial assistance 
shall have an audit made in accordance with OMB Circular

[[Page 208]]

A-128 or in accordance with the FmHA or its successor agency under 
Public Law 103-354 Audit Program. This is an option of the State and 
local government or Indian tribe. If the election is made to have an 
audit performed in accordance with the FmHA or its successor agency 
under Public Law 103-354 Audit Program, the audit shall be in accordance 
with paragraph (b)(4)(ii)(C) of this section.
    (iii) State and local governments and Indian tribes that receive 
less than $25,000 a year in Federal financial assistance shall be exempt 
from compliance with OMB Circular A-128 and the FmHA or its successor 
agency under Public Law 103-354 Audit Program. These State and local 
governments and Indian tribes shall be governed by audit standards 
prescribed by State and local law or regulation.
    (iv) Public hospitals and public colleges and universities may be 
excluded from OMB Circular A-128 audit standards. If such entities are 
excluded, audits shall be made in accordance with paragraph 
(b)(4)(ii)(B) of this section.
    (v) Indications of fraud, abuse, and illegal acts shall be processed 
in accordance with paragraph (b)(4)(i)(E) of this section.
    (B) Nonprofit institutions. These organizations are to be audited in 
accordance with this subpart, subpart I of 7 CFR part 3015, and OMB 
Circular A-133, with copies of the audit being forwarded by the borrower 
to the Servicing Officer and the appropriate Federal cognizant agency, 
if applicable. The term Federal financial assistance used herein shall 
mean Federal loan and/or grant funds received by the borrower, but not 
rental subsidies.
    (1) Cognizant agency. See paragraph (b)(4)(ii)(A)(1) of this 
section.
    (2) Audit standards. (i) Nonprofit institutions that receive 
$100,000 or more a year in Federal financial assistance shall have an 
audit made in accordance with the provisions of OMB Circular A-133. 
However, nonprofit institutions receiving $100,000 or more but receiving 
awards under only one program have the option of having an audit of 
their institution prepared in accordance with the provisions of the 
Circular or having an audit made of the one program in accordance with 
paragraph (b)(4)(ii)(C) of this section. For prior or subsequent years, 
when an institution has only loan guarantees or outstanding loans that 
were made previously, the institution will be required to conduct audits 
for those programs in accordance with paragraph (b)(4)(ii)(C) of this 
section.
    (ii) Nonprofit institutions that receive at least $25,000 but less 
than $100,000 a year in Federal financial assistance shall have an audit 
made in accordance with OMB Circular A-133 or in accordance with the 
FmHA or its successor agency under Public Law 103-354 Audit Program. If 
the election is made to have an audit performed in accordance with the 
FmHA or its successor agency under Public Law 103-354 Audit Program, the 
audit shall be performed in accordance with paragraph (b)(4)(ii)(C) of 
this section.
    (iii) Nonprofit institutions receiving less than $25,000 a year in 
Federal financial assistance are exempt from Federal audit standards, 
but records must be available for review by appropriate officials of 
FmHA or its successor agency under Public Law 103-354.
    (3) Indications of fraud, abuse and illegal acts shall be processed 
in accordance with paragraph (b)(4)(i)(E) of this section.
    (C) FmHA or its successor agency under Public Law 103-354 Audit 
Program. For-profit organizations and other entities referred to this 
paragraph by paragraphs (b)(4)(ii)(A) and/or (B) of this section, audits 
will be performed under the guidance of the audit guide entitled ``U.S. 
Department of Agriculture, Farmers Home Administration or its successor 
agency under Public Law 103-354-Audit Program'' (available in any FmHA 
or its successor agency under Public Law 103-354 office).
    (iii) Due date. (A) Annual audit reports and verifications of 
review, as appropriate, and Form FmHA or its successor agency under 
Public Law 103-354 1930-7 with 12 months of project operation actuals 
are due in the Servicing Office no later than 90 days following the 
close of the project fiscal year.
    (B) If the audit or verification of review cannot be submitted by 
the due date, and the owner presents a request for extension supported 
by evidence

[[Page 209]]

that delay is at the request of the auditor, and the request has a 
reasonable explanation of why an extension of the due date is needed, 
the Servicing Officer may authorize up to a 30-day extension of the due 
date.
    (C) If an explanation is not forthcoming from the auditor, or the 
explanation received is without good reason, or the Servicing Official 
otherwise suspects fiscal difficulty, the Servicing Official may request 
the borrower to submit to the Servicing Office for review, the project 
bank statements for the general operating, reserve, and investment 
accounts covering the most recent 60 day period.
    (D) If the borrower fails to submit the requested bank statements by 
the date stipulated by the Servicing Official, the Servicing Official 
will immediately refer the matter to the OIG.
    (iv) FmHA or its successor agency under Public Law 103-354 review. 
An audit report or verification of review will be reviewed by the 
Servicing Official within 60 days following receipt of the audit report 
or verification of review. From this annual audit review process, the 
Servicing Official will initiate action on findings and concerns needing 
immediate attention. Those findings and concerns not needing immediate 
action will be considered in the next budget planning and annual review 
process at the end of the fiscal year for implementation in the 
following fiscal year of project operation.
    (5) Miscellaneous management reports. These reports include, but are 
not limited to, the following items that provide additional or unique 
information that augment or otherwise support other management reports 
described in this section:
    (i) Documents and formats--(A) Minutes of annual meetings. Written 
record of annual meeting of organizational borrowers who, by their 
organizational charter, are required to maintain such written records.
    (B) Energy audit. Prepared according to the guidance of exhibit D of 
this subpart. Energy audits, including implementation plans for energy 
conservation, are prepared and submitted on 5-year cycles.
    (C) Miscellaneous items. These include other written or 
electronically stored data or information such as financial or income/
expense data, justification statements, or other technical or 
informative material that stands alone or supports other managements 
reports described in this section, whether volunteered by the borrower 
or requested by the Servicing Official.
    (ii) Due date. Annual minutes and miscellaneous items are due along 
with the report they are attached to as supporting documentation. New 
energy audits are due with the next submission of Form FmHA or its 
successor agency under Public Law 103-354 1930-7 following expiration of 
the old energy audit.
    (iii) FmHA or its successor agency under Public Law 103-354 review. 
FmHA or its successor agency under Public Law 103-354 review of 
miscellaneous management reports will coincide with review of the 
management report that each is attached to as documentation.

[58 FR 40868, July 30, 1993, as amended at 63 FR 2135, Jan. 14, 1998]



Sec.  1930.123  Annual review.

    (a) Objective. The objective of the annual review is for the FmHA or 
its successor agency under Public Law 103-354 Servicing Official to 
determine the degree and adequacy of the borrower's achievement of 
operational compliance with the applicable FmHA or its successor agency 
under Public Law 103-354 loan and/or grant agreements and to provide 
followup consultation or supervision to the borrower in meeting program 
objectives.
    (b) Annual review process. During the annual review process, the 
Servicing Official will consider the overall project financial and 
operational activity. Project strengths and weaknesses will be 
identified, based on review of various documents, and resultant 
conclusions will be incorporated into the annual budget planning process 
that should happen concurrently with the annual review process.
    (c) Documents used in the review. (1) Form FmHA or its successor 
agency under Public Law 103-354 1930-7.
    (2) Exhibit A-6 of subpart E of part 1944 of this chapter.
    (3) Prior fiscal year annual audit report as prepared by a CPA or 
LPA, or when applicable, Form FmHA or its

[[Page 210]]

successor agency under Public Law 103-354 1930-8 prepared by a review 
verifier accompanied by Form FmHA or its successor agency under Public 
Law 103-354 1930-7 with actual income and expense data.
    (4) Exhibit A-1 of this subpart prepared in conjunction with the 
prior year annual audit report.
    (5) Applicable attachments required as part of any of the above 
documents (or other information as volunteered by the borrower or 
specifically requested by the FmHA or its successor agency under Public 
Law 103-354 Servicing Officer for the review at hand).
    (6) Minutes of annual meeting for association type borrowers.
    (7) Current energy audit with energy conservation implementation 
plan (from FmHA or its successor agency under Public Law 103-354 
borrower casefile except when new energy audit is due with Form FmHA or 
its successor agency under Public Law 103-354 1930-7).
    (8) Latest supervisory visit and physical inspection of property 
reports (from FmHA or its successor agency under Public Law 103-354 
borrower casefile).
    (d) Preparation for the annual review. Some documents needed are 
available in the borrower's casefile and the balance needed will be 
submitted with the annual budget review request. Therefore, annual 
review should occur within 30 days of receipt of all necessary 
documents. This should result in annual reviews being completed in the 
last 2 months of a fiscal year or the first 2 months of the next fiscal 
year. When determined necessary, the Servicing Officer should:
    (1) Notify the borrower of the required management reports and their 
due dates, and provide the borrower with necessary guides and forms for 
use in preparing the reports.
    (2) With a new nonprofit borrower organization, determine that the 
borrower is properly planning for its annual meeting for the correct 
date according to its organizational documents. The Servicing Official 
should plan to attend the annual meeting unless the borrower has 
progressed as described in Sec.  1930.110(c) of this subpart.
    (e) Timing, conducting, and completing the review. (1) The annual 
review process will be scheduled and performed concurrently with the 
budget planning process, normally in the last quarter of a project 
fiscal year (see illustration in paragraph (i) of this section). This 
process will occur separately from the annual audit review process 
(which will occur following close of a project fiscal year).
    (2) The Servicing Official will use the applicable resource 
documents listed above when performing the review. The Servicing 
Official will conduct the annual review following the review and 
recording guidance of Form FmHA or its successor agency under Public Law 
103-354 1930-10. The Form FmHA or its successor agency under Public Law 
103-354 1930-10 will be completed during the prescribed last quarter 
review period.
    (3) The Servicing Official may invite the borrower or its agent to 
participate in any part of the annual review.
    (f) Distribution of reviewed documents. (1) A copy of the results of 
the annual review on Form FmHA or its successor agency under Public Law 
103-354 1930-10 along with recommendations or compliance requirements 
will be sent to the borrower and/or its agent and to the State Director 
as soon as the review is completed.
    (2) The individual items required to perform the annual review will 
be distributed according to appropriate FMI's as listed on exhibit B-7 
of this subpart.
    (g) State Director's review of annual reviews. Upon receipt of the 
items identified in this section, the State Director will:
    (1) Review all submissions of Form FmHA or its successor agency 
under Public Law 103-354 1930-10 that are used by the Servicing Official 
to record summary results of an annual project review.
    (2) Conduct a more detailed review of only those annual reviews that 
warrant further review. The State Director should provide summarized 
comment to Servicing Officials after completion of statewide review, 
otherwise the State Director will comment on any specific borrower and/
or project annual review selected for further review.

[[Page 211]]

    (3) Will review Form 1930-7 and exhibit A-6 of subpart E of part 
1944 for approval when the authority to approve budgets as part of the 
annual review is not delegated to the FmHA or its successor agency under 
Public Law 103-354 Servicing Official.
    (4) Be prepared for a sample review of annual reviews by the 
National Office upon request during a combined assessment review or 
other specific need.
    (h) On-farm LH annual review. For individual farm borrowers with on-
farm LH unit(s), the objective of this section will be satisfied by 
completing the recordkeeping and reporting requirements of their farm 
and home planning with FmHA or its successor agency under Public Law 
103-354 as outlined in subpart D of part 1944 of this chapter.
    (i) Illustration of MFH budget planning, annual review, and annual 
audit review cycles.

----------------------------------------------------------------------------------------------------------------
                                    Last quarter of    First quarter of
Items on hand during fiscal year      fiscal year      next fiscal year     Second quarter
----------------------------------------------------------------------------------------------------------------
Management Reports/items in       Budget Planning     Annual audit        FmHA or its         File annual audit
 borrower casefile.                Process--Form       preparation by      successor agency    or Form FmHA or
--Previous fiscal year annual      FmHA or its         auditor or Form     under Public Law    its successor
 audit or Form FmHA or its         successor agency    FmHA or its         103-354 review of   agency under
 successor agency under Public     under Public Law    successor agency    annual audit or     Public Law 103-
 Law 103-354 1930-8.               103-354 1930-7 &    under Public Law    Form FmHA or its    354 1930-8 for
                                   util. allowance     103-354 1930-8 by   successor agency    next budget
                                   Review change or    verifier.           under Public Law    planning & annual
                                   no change of                            103-354 1930-8.     review process.
                                   rents or                               60-day review
                                   occupancy charges                       period.
                                   and/or utility
                                   allowance.
--Exhibit A-1
--Latest supervisory visit/       FmHA or its         Form FmHA or its    FmHA or its         ..................
 inspection.                       successor agency    successor agency    successor agency
                                   under Public Law    under Public Law    under Public Law
                                   103-354 starts      103-354 1930-7      103-354 completes
                                   annual review       showing 12 months   annual review
                                   process.            of project          process.
                                                       operating actuals
                                                       submitted by
                                                       borrower.
--Energy audit & implementation   --Form FmHA or its  ..................  ..................  ..................
 plan.                             successor agency
                                   under Public Law
                                   103-354 1930-7
--Compliance review.............  --Review project    ..................  FmHA or its         ..................
--Management Plan...............   financial and                           successor agency
--Management Agreement..........   management                              under Public Law
                                   reports.                                103-354 may pre-
                                                                           fill parts II C
                                                                           and D of Form
                                                                           FmHA or its
                                                                           successor agency
                                                                           under Public Law
                                                                           103-354 1930-10.
--Forms FmHA or its successor     FmHA or its         ..................  Take immediate      ..................
 agency under Public Law 103-354   successor agency                        action on
 1944-30, Identity of Interest     under Public Law                        significant items
 (IOI) Disclosure Certificate,     103-354 completes                       found in the
 and FmHA or its successor         Form FmHA or its                        Audit Review.
 agency under Public Law 103-354   successor agency
 1944-31, Identity of Interest     under Public Law
 (IOI) Qualification Form.         103-354 1930-10.
Other--as applicable.
----------------------------------------------------------------------------------------------------------------


[58 FR 40868, July 30, 1993, as amended at 59 FR 6885, Feb. 14, 1994]



Sec.  1930.124  [Reserved]



Sec.  1930.125  Changing project designation.

    Generally, RRH projects designated for families, elderly and persons 
with

[[Page 212]]

handicaps, including congregate housing, will be used for the original 
purpose throughout the life of the FmHA or its successor agency under 
Public Law 103-354 loan. However, if it becomes necessary to change the 
designation of a project due to housing market changes which inhibit the 
borrower's ability to maintain occupancy levels sufficient to sustain 
the project, the State Director may change the designation. Project 
design must meet the housing requirements of the target group when 
changing the designation. The State Director shall consider such 
requests on a case-by-case basis when all of the following information 
has been provided:
    (a) The complete borrower case files have been submitted together 
with the Servicing Official's specific recommendations and analysis of 
the present and long term situation.
    (b) A market needs survey which substantiates the rationale for the 
change has been provided by the borrower. (The market survey must 
clearly indicate the present long term marketability of the project is 
significantly changed from the original market, and include the 
appropriate demographic information which reflects the population trends 
in the area.)
    (c) A summary of all servicing actions taken by FmHA or its 
successor agency under Public Law 103-354 to aid the borrower in 
maintaining the present designation.
    (d) A summary of all actions taken by the borrower to effectively 
market the units to potential eligible tenants.
    (e) A summary of the impact the change will have on any existing 
tenants, rent subsidy needs, and the community as a whole.
    (f) A summary of any needed or required physical modifications and 
analysis of cost feasibility to complete the modifications.



Sec. Sec.  1930.126-1930.127  [Reserved]



Sec.  1930.128  LH grants.

    In addition to the supervision provided in connection with LH loans, 
recipients of LH grants will receive supervision to assure that the 
terms of the grant agreement and other objectives of the LH grant are 
carried out. This supervision will be continued to assure that the grant 
purposes will be accomplished. Comments on the following points will be 
included in appropriate reports, to assure that:
    (a) The rents are reasonable.
    (b) The project is operated as a community service for the benefit 
of the tenants.
    (c) Domestic farm laborers are given absolute priority in occupancy. 
(This requirement also applies to borrowers who have LH loans only.)
    (d) No public or private nonprofit organization borrower may require 
that an occupant work for a particular farm or for a particular owner or 
interest as a condition of occupancy of the housing.



Sec.  1930.129  RHS loans.

    RHS loans will be serviced according to program regulations and the 
conditions specified in the borrower's loan resolution. The following 
additional supervisory action by the Servicing Official will also apply 
to assure that the terms of the loan resolution and loan objectives are 
carried out:
    (a) Review of the site development account records for compliance 
with authorized loan expenditures.
    (b) Work with the borrower on the adjustment of sales price, not to 
exceed market value, of the developed lots as they are being sold to 
assure adequate income to repay the loan, pay taxes, accrued interest, 
and any other authorized debt or expenditures.
    (c) Determine that lots are sold only to eligible buyers.
    (d) Work closely with the borrower to plan for the sale of all lots 
prior to the due date of the note.
    (e) Should the RHS borrower default in its loan obligations, the 
account will be serviced according to Sec.  1965.85 of subpart B of part 
1965 of this chapter. The Servicing Official's report to the State 
Director should contain the following information:
    (1) The status of the account, number of lots unsold, and reasons 
for the problem.
    (2) Prospects of selling lots to eligible buyers and a target date 
as to when this can be accomplished, if feasible.
    (3) General comments and recommendations for future servicing of

[[Page 213]]

this account. Where necessary, liquidation may be recommended.
    (f) State Directors will take the following actions in connection 
with problem RHS accounts:
    (1) Provide additional guidance and assistance as necessary.
    (2) If a satisfactory proposal for selling the lots can be 
developed, the account will be serviced according to program regulations 
and the provisions of this subpart and subpart B of part 1965 of this 
chapter.
    (3) Where no satisfactory proposal for selling the remaining lots 
can be developed, the account will be handled according to Sec.  
1965.85(e) of subpart B of part 1965 of this chapter for liquidation.



Sec. Sec.  1930.130-1930.133  [Reserved]



Sec.  1930.134  FmHA or its successor agency under Public Law 103-354 
office records.

    FmHA or its successor agency under Public Law 103-354 officials will 
maintain records in accordance with FmHA or its successor agency under 
Public Law 103-354 Instructions 2033-A and G (available in any FmHA or 
its successor agency under Public Law 103-354 office).



Sec. Sec.  1930.135-1930.136  [Reserved]



Sec.  1930.137  State Supplements, guides, forms, and other issuances.

    It is FmHA or its successor agency under Public Law 103-354's 
practice to follow the provisions of the Administrative Procedures Act 
by inviting public comment before adopting public policy, unless 
otherwise directed by statute. However, the State Director may, in 
accordance with FmHA or its successor agency under Public Law 103-354 
Instruction 2006-B (available in any FmHA or its successor agency under 
Public Law 103-354 office), and with prior approval of the National 
Office and the assistance of the OGC, develop State Supplements, guides, 
or issuances to the extent necessary to enable borrowers to comply with 
the policies, procedures, and exhibits of this subpart and the 
applicable provisions of State laws. Under no circumstances will State 
forms be developed as replacements for the forms referred to in this 
subpart.



Sec.  1930.138  Supervisory actions for distressed projects.

    MFH projects experiencing high vacancy rates which would lead to 
project failure can apply for a special servicing market rate rent 
change in accordance with paragraph IX of exhibit C of this subpart.



Sec. Sec.  1930.139-1930.140  [Reserved]



Sec.  1930.141  Materials to be provided borrower/applicant.

    To enable borrowers and applicants to meet the intent of this 
subpart, they will be supplied with one reproducible copy of the 
following FmHA or its successor agency under Public Law 103-354 exhibits 
and forms and materials as they are issued and/or updated:
    (a) Exhibits B and B-1 thru 14 of this subpart, when applicable.
    (b) Exhibits C, C-1, and C-2 of this subpart.
    (c) Exhibits D and D-1 of this subpart.
    (d) Exhibit E of this subpart.
    (e) Exhibits H and H-1 of this subpart.
    (f) Exhibit I of this subpart.
    (g) Exhibit J of this subpart, when applicable.
    (h) Subpart L of part 1944 of this chapter.
    (i) Booklet entitled ``Audit Program.''
    (j) For farm LH borrowers and/or applicants, exhibit B of subpart D 
of part 1944 of this chapter in addition to the preceding items of this 
section.
    (k) The following forms:
    (1) Form FmHA or its successor agency under Public Law 103-354 1930-
7 and attached exhibit A-6 of subpart E of part 1944, if applicable.
    (2) Form FmHA or its successor agency under Public Law 103-354 1930-
8.
    (3) Form FmHA or its successor agency under Public Law 103-354 1944-
7, ``Multiple Family Housing Interest Credit and Rental Assistance 
Agreement.''
    (4) Form FmHA or its successor agency under Public Law 103-354 1944-
29, ``Project Worksheet for Interest Credit and Rental Assistance.''

[[Page 214]]

    (5) Form FmHA or its successor agency under Public Law 103-354 1944-
8.
    (6) Form FmHA or its successor agency under Public Law 103-354 1910-
5, ``Request for Verification of Employment.''



Sec.  1930.142  Complaints regarding discrimination in use and occupancy 
of MFH.

    Any tenant or prospective tenant seeking occupancy or use of RRH, 
RCH, LH, or related facilities who believes he or she has been 
discriminated against because of race, color, religion, sex, national 
origin, age, familial status, or handicap may file a complaint in person 
with, or by mail to the Office of Fair Housing and Equal Opportunity, 
Department of Housing and Urban Development (HUD), Washington, DC 20410, 
or any HUD office, or to the Administrator, FmHA or its successor agency 
under Public Law 103-354, USDA, Washington, DC 20250. If the complaint 
is made to an FmHA or its successor agency under Public Law 103-354 
County, Servicing, or State Office, it must be directed to the Director 
of Equal Opportunity Staff (EOS), National Office by the FmHA or its 
successor agency under Public Law 103-354 employee in charge of that 
office. When a complaint is sent to FmHA or its successor agency under 
Public Law 103-354-EOS by a FmHA or its successor agency under Public 
Law 103-354 Servicing Office, the State Director will be made aware of 
the complaint.
    (a) Personnel in FmHA or its successor agency under Public Law 103-
354 field offices will provide assistance to the aggrieved party when 
filling out required forms and filing a complaint.
    (b) Each complaint must contain the following information:
    (1) The name and address of the respondent (complainant).
    (2) The name and address of the aggrieved person.
    (3) A description and the address of the dwelling which is involved, 
if appropriate.
    (4) A concise statement of the facts, including pertinent dates, 
constituting the alleged discriminatory housing practice.
    (c) Participants in FmHA or its successor agency under Public Law 
103-354's housing program failing to comply with the requirements of 
Title VIII of the Civil Rights Act of 1968 as amended by the Fair 
Housing Amendments Act of 1988, and the respective Affirmative Fair 
Housing Marketing Plan will make themselves liable to sanction 
authorized by law, regulations, agreements, rules and/or policies 
governing the program pursuant to which the application was made. All 
complaints will be handled in accordance with prescribed procedure. 
Victims of alleged discriminatory housing practices may seek reparations 
through HUD or by private lawsuit.



Sec.  1930.143  Delegation of responsibility and authority.

    (a) The Administrator may on an individual state basis, authorize 
the State Director to contract out selective fact gathering, nondecision 
making servicing actions in this subpart.
    (b) The State Director may delegate in writing any authority 
delegated to the State Director in this subpart unless otherwise 
restricted, to those State staff members who, in the opinion of the 
State Director, have been adequately trained and who demonstrate their 
knowledge in understanding and administering the MFH policies and 
procedures of FmHA or its successor agency under Public Law 103-354. The 
State Director may further delegate such authority in like manner to 
Servicing Offices by either of two options:
    (1) To individual Servicing Office staff members, including the 
Servicing Official.
    (2) To the position of Servicing Official, the incumbent of which 
may further delegate specified authority to identified Servicing Office 
staff members. A copy of such delegation will be filed with the State 
Director.
    (c) Individual delegation of responsibility and authority may be 
limited or expanded in scope, or revoked, as deemed appropriate by the 
State Director, or the Servicing Official when applicable, and will be 
prepared according to FmHA or its successor agency under Public Law 103-
354 Instruction 2006-F (available in any FmHA or its successor agency 
under Public Law 103-354 office).

[[Page 215]]



Sec.  1930.144  Exception authority.

    The Administrator may, in individual cases, make an exception to any 
requirements of this subpart not required by the authorizing statute if 
he/she finds that application of such requirement would adversely affect 
the interest of the Government or adversely affect the accomplishment of 
the purposes of the MFH program or result in undue hardship by applying 
the requirement. The Administrator may exercise the authority at the 
request of the State Director or the Assistant Administrator for 
Housing. The request must be supported by data that demonstrates the 
adverse impact, citing the particular requirement involved and 
recommending proper alternative course(s) of action, and outlining how 
the adverse impact could be mitigated.



Sec.  1930.145  Appeals.

    Only the borrower, or the borrower's representative (as defined in 
subpart B of part 1900 of this chapter), can appeal an FmHA or its 
successor agency under Public Law 103-354 decision. The borrower's 
management agent may not request an appeal unless he/she has been 
designated as the borrower's representative. This means he/she must be 
authorized in writing by the borrower to act for the borrower in the 
administrative appeal, as required by subpart B of part 1900 of this 
chapter (this may be addressed in the management agreement). The 
borrower's request for review of an alleged adverse decision must be 
made to FmHA or its successor agency under Public Law 103-354 in written 
form. Appeals and reviews will be handled in accordance with directions 
set forth in subpart B of part 1900 of this chapter.



Sec. Sec.  1930.146-1930.149  [Reserved]



Sec.  1930.150  OMB control number.

    The reporting and recordkeeping requirements contained in this 
regulation have been approved by the Office of Management and Budget and 
have been assigned OMB control number 0575-0033. Public reporting and 
recordkeeping burden for this collection of information is estimated to 
vary from 5 minutes to 10.25 hours per response, with an average of 0.43 
hours per response, including time for reviewing instructions, searching 
existing data sources, gathering and maintaining the data needed, and 
completing and reviewing the collection of information. Send comments 
regarding this burden estimate or any other aspect of this collection of 
information, including suggestions for reducing this burden, to the 
Department of Agriculture, Clearance Officer, OIRM, room 404-W, 
Washington, DC 20250; and to the Office of Management and Budget, 
Paperwork Reduction Project (OMB 0575-0033), Washington, DC 
20503.

      Exhibit A to Subpart C of Part 1930--Steps for Farmers Home 
 Administration (FmHA) or Its Successor Agency Under Public Law 103-354 
  Personnel in Conducting Annual Review of Multiple Housing Operations

    I. Examine the Condition of the Borrower/Management Reports to 
Determine that:
    A. Required accounts are being properly maintained in accordance 
with the loan resolution or agreement.
    B. Decisions of officials are being entered in the minutes book, if 
applicable.
    C. Any membership or stock transfers have been approved by FmHA or 
its successor agency under Public Law 103-354 and recorded as required.
    D. Financial records are maintained by qualified persons.
    E. The financial records are being reviewed by a qualified auditor 
where an audit is required or by a competent individual or committee 
when a verification of review of accounts is required.
    II. Study the Financial Progress: Compare current financial 
condition and owner's equity with previous years to discover any trends, 
for example:
    A. Has cash carryover increased or decreased?
    B. Are the debts greater or less?
    C. Is the owner's equity greater or less?
    D. Are accounts receivable greater or less?
    E. Are collection provisions being enforced?
    F. Are reserve and other required funds or accounts properly 
maintained?
    III. Study the State of Income and Expenditures for the Past Year: 
Compare it with the budget for the past year and the same statement for 
previous years.
    A. Were rents or occupancy charges, subsidies, and other monies 
collected sufficient

[[Page 216]]

to produce the required revenues for planned expenditures?
    B. Were actual expenditures significantly different from those 
budgeted?
    C. Were the expenditures sufficient to adequately maintain the 
project?
    D. Were expenditures reasonable and typical for similar projects?
    E. Were any essential items of maintenance deferred during the past 
year?
    F. Were payments made on authorized debts in the proper amounts and 
on the dates agreed to?
    G. If the borrower is operating on a limited profit basis, did net 
cash return exceed the amount permitted in the loan agreement or loan 
resolution?
    H. Did the borrower charge late fees to project accounts other than 
the Return on Investment Account?
    I. Were an excessive number of overage charges paid by the project?
    IV. Study the Budget for the next Year: Compare it with the 
statement of income and expenditures for the past year, taking into 
consideration any known increase or decrease in operating expenses for 
the planned year and the prevailing costs of doing similar business in 
the market area.
    A. Are proposed expenditures adequate for normal maintenance and 
operation of the project?
    B. Are proposed fees to be paid to firms closely associated with the 
borrower and their management agents typical, reasonable, and earned for 
the services to be provided?
    C. Does the budget make provision for financing maintenance or 
energy conservation measures/practices deferred from the previous year?
    D. Does it provide for the required financial reserves?
    E. Is planned revenue adequate to cover planned expenditures?
    F. Will the budget and planned operating practices correct any 
deficiencies in the past year's operations?
    V. Study the Audit Report: Compare it with the audit from the 
previous year, noting any significant changes affecting the borrower's 
operations. Exhibit A-1 of this subpart may be used as a guide.
    VI. Review the Energy Audit: Review the most recent energy audit and 
the borrower's plan for implementation.
    VII. Determine Whether or Not the Borrower Has:
    A. Maintained required financial records and accounts, made required 
reports, submitted required financial audits or verifications of review 
and taken appropriate action to correct previously noted deficiencies of 
such records, reports, audits or verifications.
    B. Renewed fidelity coverage and insurance policies.
    C. For borrowers with governing bodies.
    1. Held regular board, committee, and membership meetings.
    2. Conducted the affairs along sound business lines.
    D. Made a change in any organizational documents without FmHA or its 
successor agency under Public Law 103-354 consent.
    E. Made a change in the plans for management and operations of the 
project without FmHA or its successor agency under Public Law 103-354 
consent.
    F. Made a change in the membership or interest in ownership without 
FmHA or its successor agency under Public Law 103-354 consent.
    VIII. Summary: Summarize major observations and decisions reached as 
the result of the review and record on Form FmHA or its successor agency 
under Public Law 103-354 1930-10, ``Annual Multiple Family Housing 
Project Review.''

    Exhibit A-1 to Subpart C of Part 1930--Audit Report Review Guide

    I Purpose. To present a general guide for use of Farmers Home 
Administration (FmHA) or its successor agency under Public Law 103-354 
staffs in the review of independent accountants' audit reports in order 
to obtain maximum benefit from these audits. The procedures are designed 
to provide uniformity in the audit review, improve loan program 
servicing, and help to promote better independent audits.
    II General. FmHA or its successor agency under Public Law 103-354 
guidelines for independent auditors are detailed in the booklet, ``U.S. 
Department of Agriculture, Farmers Home Administration or its successor 
agency under Public Law 103-354--Audit Program'' (hereinafter called 
Audit Program and available in any FmHA or its successor agency under 
Public Law 103-354 office). This Audit Program, along with other 
instructions, is designed to protect the security of Government loans. 
The review of the financial and financially related information in the 
audits must be performed from a technical standpoint in a prompt manner 
so that the facts and conclusions are readily available for analysis; 
only then can results be used effectively for management purposes and 
help to insure improved audit practices.
    III Scope. The review should include:
    A A determination of the adequacy of the audit in relation to FmHA 
or its successor agency under Public Law 103-354 regulations and the 
Audit Program.
    B Interpretation of information included in the audit.
    C Preparing a letter to the borrower on any missing or adverse audit 
data.
    D Informing appropriate FmHA or its successor agency under Public 
Law 103-354

[[Page 217]]

offices of review results and recommendations.
    IV Review Procedures to Be Followed.
    A General. The individual professional judgment of the reviewer 
should be used at all times. Considerations and decisions requiring the 
exercise of judgment should be used in the following:
    1 Circumstances peculiar to the borrower.
    2 Degree of importance attached to each item questioned.
    3 Number of exceptions.
    4 Whether the exceptions relate to the auditor's work or the 
borrower's records and operations.
    5 If specific action is to be requested of the borrower.
    6 Whether or not the report, as a whole, is acceptable.
    B Review and Procedure.
    1 Specific.
    a Determine if the audit was performed by a Certified Public 
Accountant (CPA) or a Licensed Public Accountant (LPA) who was licensed 
on or before December 31, 1970.
    b Determine if the audit was conducted in accordance with Government 
Auditing Standards (1988 Revision), often referred to as generally 
accepted government auditing standards (GAGAS).
    c Does the audit cover the most recent 12 months since the previous 
audit?
    d Was the audit received within 90 days after the borrower's year 
end, or was an extension of up to an additional 30 days authorized by 
the Servicing Official, and if so, was it met?
    2 Evaluation checklist for audit reports. The ``Evaluation Checklist 
for Audit Reports'' which is attachment 1 of this exhibit is designed to 
systematically record and reveal the audit findings. Information tallied 
on this form is a good indication of whether or not additional 
contact(s) need to be made with the borrower.
    3 Previous audits and correspondence. Reference to the prior audit 
and any correspondence concerning it can be most helpful in the current 
review. Determine whether corrections requested in the previous year 
have been made, and whether the borrower has complied with previous 
suggestions for improvement in the audit report.
    C Preparing the audit review letter. After completion of the 
``Evaluation Checklist for Audit Reports'' (attachment 1 of this 
exhibit) and applying personal judgment, a decision must be made on 
whether or not to prepare an audit review letter similar to that shown 
as attachment 2 of this exhibit.
    1 If the audit fully complies with the Audit Program and 
instructions, a letter is not necessary.
    2 If the audit substantially meets the requirements and is lacking 
in only a few points, ask the borrower to have the auditor furnish this 
additional information.
    3 Audits which are unacceptable should be returned to the borrower 
for full compliance, indicating the reasons and a timetable for 
resubmitting.

          Attachment 1--Evaluation Checklist for Audit Reports

________________________________________________________________________
State

________________________________________________________________________
County

________________________________________________________________________
Name of Borrower

________________________________________________________________________
Address

________________________________________________________________________
Case No.

________________________________________________________________________
Name of Auditor

________________________________________________________________________
Project No.

________________________________________________________________________
Date of Audit Report

________________________________________________________________________
Period Covered

------------------------------------------------------------------------
                 Yes/no
------------------------------------------------------------------------
                                         1. Auditor's Opinion. (section
--------                                  G-1*).
--------                                 (a) Unqualified.
--------                                 (b) Qualified.
                                         (c) No Opinion.
                                         2. Financial Statement.
--------                                  (section J-1*).
--------                                 (a) Balance Sheet.
--------                                 (b) Results of Operations.
                                         (c) Statement of Cashflow
--------                                  (Changes in Financial
                                          Position).
--------                                 (d) Statement of Changes in
                                          Retained Earnings.
                                         (e) Notes to the Financial
                                          Statements.
                                         3. Statement on Auditing
                                          Standards. (section J-2*).
--------                                 Audit Report contains a
                                          statement that the audit was
                                          made in accordance with
                                          Generally Accepted Government
                                          Auditing Standards (GAGAS).
                                         4. Report on Compliance.
                                          (section J-3*).
--------                                 The auditor should prepare a
                                          written report on the tests of
                                          compliance with applicable
                                          laws, regulations, loan
                                          covenants and agreement and
                                          grant agreements. List
                                          significant compliance
                                          findings:
                                         --------------------
                                         --------------------
                                         --------------------
                                         5. Report on Internal Controls.
--------                                  (Section J-4*). The auditor's
                                          report should assess the
                                          borrower's control risk
                                          including discussion on the
                                          scope of the auditor's
                                          assessment, significant
                                          internal controls assessed,
                                          and any material weaknesses of
                                          internal control noted. List
                                          significant internal control
                                          findings:
                                         ----------------------
                                         ----------------------
                                         ----------------------
                                         ----------------------
                                         6. Reporting Instances of
--------                                  Indication of Illegal Acts.
                                          (Section J-5*). List any
                                          noted:
                                         ----------------------

[[Page 218]]

 
                                         ----------------------
                                         7. Uncorrected Prior Audit
--------                                  Findings. (Section J-6*).
                                          List:
                                         ------------------------
                                         ------------------------
                                         8. Was report received within
--------                                  90 days after the end of the
                                          borrower's operating year or
                                          within a 30 day extension?
                                         9. Was audit performed and
--------                                  signed by a CPA or LPA? If by
                                          an LPA, verify that the LPA
                                          was licensed on or before
                                          December 31, 1970.
------------------------------------------------------------------------

    *References to ``Sections'' indicate the appropriate section in the 
FmHA or its successor agency under Public Law 103-354 Audit Program 
booklet.

                Attachment 2--Example Audit Review Letter

________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Dear Borrower (or Borrower Representative):
    We have reviewed your audit report for the period ------------ to --
----------, prepared by -------------------- on ------------. This 
review was made in accordance with current Farmers Home Administration 
(FmHA) or its successor agency under Public Law 103-354 regulations and 
the Audit Program entitled ``U.S. Department of Agriculture, Farmers 
Home Administration or its successor agency under Public Law 103-354-
Audit Program.'' Based on this review, your audit:
    1. ( ) Is acceptable. However, the auditor's recommendations 
concerning ------------ should be implemented prior to next year's 
audit.
    2. ( ) Is acceptable but did not include comparative-type financial 
statements as indicated in Section J-1 of the Audit Program. Please 
inform the auditor to prepare such statements next year.
    3. ( ) Is acceptable but was not submitted within 90 days or an 
authorized delay of ------------ days after the end of the borrower's 
fiscal year. Please insure that next year's audit is forwarded before --
----------.
    4. ( ) Substantially meets all the requirements. However, the 
following items were omitted as detailed in the Audit Program, Section 
J, ``Reporting Standards.'' Please have your auditor comment on the 
item(s) circled and forward a copy to us. The circled numbers correspond 
to the 6 items listed in Section J of the August Program.

J-1 J-2 J-3 J-4 J-5 J-6

    5. ( ) Is returned as unacceptable for the following reason(s). 
Please have the auditor prepare your audit in accordance with the Audit 
Program.
    a. [ ] It was prepared without audit.
    b. [ ] The following financial statements were omitted: (Audit 
Program, Section J-1)
    [ ] Balance Sheet.
    [ ] Results of Operations.
    [ ] Statement of Cash Flow.
    [ ] Statement of Changes in Retained Earnings, or
    [ ] Reconciliation of Owner's or Partner's Equity.
    [ ] The auditor's opinion of Compliance. (Audit Program, Section J-
3).
    [ ] The auditor's opinion of internal control. (Audit Program, 
Section J-4).

________________________________________________________________________

Servicing Official
    This letter will be prepared in the Servicing Office. A copy of the 
audit and the approval memorandum will be sent to the State Office.

    Exhibit B to Subpart C of Part 1930--Multiple Housing Management 
                                Handbook

    I Purpose: This exhibit prescribes the Farmers Home Administration 
(FmHA) or its successor agency under Public Law 103-354 regulations, 
policies, and procedures for management of Rural Rental Housing (RRH), 
Rural Cooperative Housing (RCH), and Labor Housing (LH) projects to be 
used by multiple housing borrowers (owners) and applicants and their 
management agents and site managers. Several exhibits are included to 
provide guidance. These regulations are intended to assist borrowers in 
the successful operation of FmHA or its successor agency under Public 
Law 103-354-financed rental and cooperative projects.
    II Definitions:
    Adjusted annual income. This is the annual income of the household 
members, who live or propose to live in the unit for the next 12 months. 
(Households with a member permanently confined to a hospital or nursing 
home may choose to either include annual income attributable to such 
person, less deductions for which the person would qualify, or exclude 
the annual income attributable to such person and not take any 
deductions for which the person would qualify.), excluding:
    1 $480 for each member of the family residing in the household 
(other than the tenant, cotenant, member, or comember or spouse of 
either, or foster children) who is under 18 years of age; or who is 18 
years of age or older and is disabled, handicapped or a full-time 
student. The student must carry a subject load considered full-time by 
the educational institution attended. This deduction does not apply to 
an unborn child in the household.
    2 $400 for any elderly family.
    3 In the case of an elderly family, the total of actual medical and/
or handicap assistance expenses paid in excess of 3 percent of annual 
family income may be deducted. If

[[Page 219]]

an elderly family has both medical and handicap assistance expense, the 
3 percent of annual income must first be deducted from handicap 
assistance and any remainder then deducted from medical expenses.
    a Total medical expense includes medical expenses not covered by 
insurance that the tenant or member anticipates incurring over the 12 
months following the effective date of the certification, using past 
experience as a guide.
    b Examples of medical expenses are dental expenses, prescription and 
nonprescription medicines, medical insurance premiums including 
medicare, eyeglasses, hearing aids and batteries, medical related travel 
cost, the cost of attendant care including a live-in-resident assistant, 
monthly payments required on accumulated major medical bills including 
that portion of a household member's nursing home care paid from 
household income(s).
    Note: Premiums paid for nursing home insurance are not an allowable 
deduction unless a household member is housed at a nursing home and that 
person's income is included in the household income.)
    c Handicap assistance includes reasonable attendant care and 
auxiliary apparatus expenses described as follows for each member with 
handicaps of the family to the extent needed to enable any family member 
(including such member with handicaps) to be employed:
    (1) That portion of attendant care attributable to specialized 
medical reasons (the portion attributable to companionship is not 
counted).
    (2) Auxiliary apparatus including but not limited to wheelchairs, 
oxygen equipment, reading devices for the visually impaired, and the 
cost of equipment added to cars and vans to permit their use by the 
handicapped or disabled family member proportionate to the amount of use 
by such persons.
    4 In the case of any nonelderly family, total handicap assistance 
expense in excess of 3 percent of annual family income may be deducted:
    a For any handicap assistance expense described in paragraph 3 c of 
this definition that is anticipated to occur over the 12 months 
following the effective date of the certification, using past experience 
as a guide, to the extent needed to enable any family member (including 
the handicapped or disabled family member) to be employed.
    b The amount of deduction may not exceed the LESSER of the amount by 
which total expenses for handicap assistance exceed 3 percent of annual 
family income, or the amount of income received by adult members from 
such employment.
    5 The amounts paid by the family for the care of minors under 13 
years of age may be deducted only to the extent such expenses are not 
reimbursed. In the case of families assisted by American Indian housing 
authorities, the amount will be the greater of child care expenses; or 
excessive travel expenses, not to exceed $25 per family per week. 
Deductions for these expenses are permitted only when such care is 
necessary to enable a family member to further his or her education or 
to be gainfully employed, including the gainful employment of the 
disabled or handicapped family member. When the deduction is to enable 
gainful employment the amount may not exceed the amount of income 
received from such employment. When the deduction is to facilitate 
further education, the amount must not exceed a sum reasonably expected 
to cover class time and travel time to and from classes. The tenant file 
must contain justifying documentation. (Child support payments made on 
behalf of a minor child who does not reside in the unit may not be 
deducted as a child care expense).
    Adjusted monthly income. This is the amount obtained by dividing the 
adjusted annual income by 12.
    Annual income. Annual income is the anticipated total amount of 
income to be received by all members of the household (even if 
temporarily absent) to be in residence during 12 months following the 
effective date of Form FmHA or its successor agency under Public Law 
103-354 1944-8, ``Tenant Certification.''
    1 Income Included. The following are included when determining 
annual income:
    a The gross amount (before any deductions) of wages and salaries, 
overtime pay, commissions, fees, tips, and bonuses reasonably expected 
to be received by all members of the household.
    b The net income reasonably expected to be received from operations 
of a business or profession or from rental of real or personal property. 
Expenditures for business expansion or amortization of indebtedness are 
not considered in the computation of net income. Net losses will be 
computed as zero. Deductions from gross business or rental income to 
arrive at net income may be made in the same manner as outlined in 
Internal Revenue Service (IRS) regulations for the exhaustion, wear and 
tear, and obsolescence of depreciable property used in the trade or 
business of the adult household members under the straight line method 
of depreciation. An itemized schedule must be provided in support of any 
deductions from gross income made under the provisions of this section. 
The schedule should be consistent with the amount of depreciation 
permitted for these items for Federal income tax purposes under the 
straight line method of depreciation.
    c Interest, dividends, and other received income as defined under 
net family assets in this paragraph. On contracts for sale of real 
estate, deeds of trust, or mortgages held by

[[Page 220]]

the applicant, tenant or member, only the interest portion of the 
monthly or annual payments received by the applicant, tenant or member 
is included as income.
    d The gross amount of periodic payments from Social Security 
(including Social Security payment received by adults on behalf of 
minors or by minors intended for their own support), annuities, 
insurance policies, retirement funds, pensions, disability or death 
benefits (except lump sum settlements), and other similar types of 
periodic receipts.
    e Payments received in lieu of earnings, such as unemployment and 
disability compensation, worker compensation, and severance pay.
    f Periodic and determinable allowances, such as alimony and child 
support payments, which the applicant, tenant or member can reasonably 
expect to receive.
    g Regularly recurring contributions or gifts received from persons 
not residing in the dwelling.
    h Any amount of education grants or scholarships or Veterans 
Administration benefits expected to be received on behalf of tenant, 
cotenant, member, or comember, applicant, or other adult that exceeds 
attendance expenses for tuition, fees, books, and equipment to include 
materials, supplies, transportation, and miscellaneous personal expenses 
of the student (i.e., that portion of benefits received for ``room and 
board'').
    i All regular pay, separation pay, special pay (except hazard duty 
pay for persons exposed to hostile fire), and allowances of a member of 
the armed forces who is head of the family or spouse, whether or not 
that family member lives in the unit.
    j Payment received from an adoption incentive program to compensate 
support of a minor child legally adopted by the tenant household.
    k Public assistance.
    (1) A public assistance payment that DOES NOT designate an amount 
specifically for rent and utilities shall be counted entirely as income.
    (2) A public assistance payment, when administered ``as-paid'' by 
the public assistance agency, DOES designate a specific amount for rent 
and utilities and may adjust (or ratably reduce) that amount based upon 
what the family is currently paying for those items (only one ratable 
reduction will be permitted). The SUM of the ratably reduced amount for 
rent and utilities and the amount for subsistence and other needs shall 
be counted as income.
    (3) Example: The public agency's published schedule shows a monthly 
maximum of $180 for rent and utilities for a particular size family. The 
public assistance agency has verified that the family will receive $220 
monthly for subsistence and other needs. If the agency does not apply a 
ratable reduction, $400 per month ($180 + $220) will be included in 
annual income. If the agency applies a ratable reduction (e.g., 20 
percent) annual income will be computed as shown below:

------------------------------------------------------------------------
       Public assistance (P.A.) rent                   Income
------------------------------------------------------------------------
$180 maximum allowed for housing..........  $220 basic needs
                                            +144 P.A. rent
x.80 P.A. adjustment factor...............  $364 mthly income
$144 monthly P.A. rent....................  x12 months
                                            *$4,368 annual income
------------------------------------------------------------------------
* Shown on line 17 f of part IV of Form FmHA or its successor agency
  under Public Law 103-354 1944-8.

    2 Income Exempted. The following are not included in annual income:
    a Income of dependent minors (including foster children) under 18 
years of age except as specified under 1d of the definition of annual 
income in this paragraph. (Tenant, cotenant, member or comember, or 
spouse of either may never be considered minors.)
    b In the case of contracts for sale of real estate, mortgages or 
Deeds of Trust held by the tenant, cotenant, member, or comember, the 
principal portion of the payments received by the tenant, cotenant, 
member, or comember.
    c The value of the allotment provided to an eligible household under 
the Food Stamp Act of 1977.
    d Payments received for the care of foster children.
    e Temporary, nonrecurring, or sporadic income (including gifts).
    f Lump-sum additions to family assets such as inheritances; capital 
gains; insurance payments included under health, accident, hazard, or 
worker compensation policies, and settlements for personal or property 
losses.
    g Amounts which are granted specifically for, or in reimbursement 
of, the cost of medical expenses for any household member. Medical 
expenses may include those expenses incurred by disabled or handicapped 
residents so that they may maintain independence in living (e.g., 
attendant care).
    h Amounts of education scholarships paid directly to the student or 
to the educational institution, and amounts paid by the Government to a 
veteran for use in meeting the attendance costs of tuition, fees, books, 
and equipment to include materials, supplies, transportation, and 
miscellaneous personal expenses of the student. Any amounts of such 
scholarships or veterans payments, which are not used for above purposes 
and are available for subsistence and shelter, are considered to be 
income of tenant, cotenant, member, comember, or applicant.
    i Student loans.
    j The special hazard duty pay to a household member serving in the 
Armed Forces away from home, who is exposed to hostile fire.

[[Page 221]]

    k Payments received pursuant to participation in the following 
programs:
    (1) Programs under the Domestic Volunteer Service Act of 1973 
including, but not limited to, the National Older Americans Volunteer 
Programs of the Federal Action Agency for persons age 60 and over 
including the:
    (i) Retired Senior Volunteer Program.
    (ii) Foster Grandparent Program.
    (iii) Senior Companion Program.
    (iv) Older American Committee Service Program.
    (2) National Volunteer Antipoverty Programs such as Volunteers in 
Service to America, Peace Corps, Service Learning Program and Special 
Volunteer Programs.
    (3) Small Business Administration Programs such as the National 
Volunteer Program to Assist Small Business and Promote Volunteer Service 
to Persons with Business Experience, Service Corps of Retired Executives 
and Active Corps of Executives and,
    (4) Title V--Community Service Employment for Older Americans which 
include:
    (i) Senior Community Service Employment Program
    (ii) National Caucus Center on Black Aged
    (iii) National Urban League
    (iv) Association National Pro Personas Mayors
    (v) National Council on Aging
    (vi) American Association of Retired Persons
    (vii) National Council of Senior Citizens
    (viii) Green Thumb.
    (5) Payments received from a State or local low income energy 
assistance program.
    l Relocation payments made pursuant to title II of the Uniform 
Relocation Assistance and Real Property Acquisition Policies Act of 
1970.
    m Payments received under the Alaska Native Claims Settlement Act.
    n Income derived from certain submarginal land of the United States 
that is held in trust for certain Indian tribes.
    o Payments or allowances made under the Department of Health and 
Human Services Low-Income Home Energy Assistance Program.
    p That portion of tenant income paid from the Job Training 
Partnership Act, whether paid directly or through the employer.
    q Income derived from the disposition of funds of the Grand River 
Bank of Ottawa Indians.
    r The first $2,000 of per capital shares received from judgment 
funds awarded by the Indian Claims Commission or the Court of Claims, or 
from funds held in trust for an Indian tribe by the Secretary of 
Interior.
    s Any funds which a Federal statute specifies must not be used as 
the basis for denying or reducing Federal financial assistance or 
benefits to which the recipient would otherwise be entitled. (Note: The 
Department of Housing and Urban Development (HUD) periodically publishes 
a notice in the Federal Register identifying the programs and benefits 
that qualify for this exemption.)
    t Income of a resident assistant, as defined in this paragraph.
    u Amounts received under training programs funded by HUD.
    v Amounts received by a disabled person (including a sight impaired 
person) that are disregarded for a limited time for purposes of 
Supplemental Security Income eligibility, and benefits because they are 
set aside for use under a Plan to Attain Self-Sufficiency.
    w Amounts received by a participant in other public assisted 
programs which are specifically for or in reimbursement of out-of-pocket 
expenses incurred (special equipment, clothing, transportation, child 
care, etc.) and which are made solely to allow participation in a 
specific program.
    x Gifts, payments, or credits provided by the borrower for the same 
purposes as interest credit or rental assistance for the benefit of 
residents in accordance with an FmHA or its successor agency under 
Public Law 103-354 approved budget when needed to alleviate or avoid 
financial distress in a project for a temporary specified time period 
identified by FmHA or its successor agency under Public Law 103-354.
    y Interest accrual to an annuity that cannot be withdrawn due to the 
terms of the annuity or its being under the control of others.
    z Payments received after January 1, 1989, from the Agent Orange 
Settlement Fund or any other fund established pursuant to the settlement 
in the IN RE Agent Orange product liability litigation, M.D.L. No. 381 
(E.D.N.Y.)
    aa Payments received under the Maine Indian Claims Settlement Act of 
1980 (Public Law (Pub. L.) 96-420, 94 Stat 1785).
    bb Earned Income Tax Credit Refund Payments
    cc Redress payments received by Japanese American internment camp 
survivors.
    dd Reparations paid by foreign governments arising out of the 
Holocaust.
    ee Deferred periodic payments received in a lump sum from SSI and 
Social Security.
    Borrowers. ``Borrowers'' means owners who may be individuals, 
partnerships, cooperatives, trusts, public agencies, private or public 
corporations, and other organizations and have received a loan or grant 
from FmHA or its successor agency under Public Law 103-354 for LH, RRH, 
RCH, or Rural Housing Site (RHS) purposes.
    Caretaker. The individual(s) employed by the borrower or the 
management agent to handle normal interior and exterior maintenance and 
upkeep of the project as specified in the management plan.

[[Page 222]]

    Cash value of assets. Current market value less cost to convert 
assets to cash.
    Chore service worker. An individual who provides intermittent 
assistance essential to the well being of household members whose 
services are compensated by a Federal, State, or local assistance 
program. A chore service worker will not be a resident of the household 
living unit.
    Congregate Housing. Residential housing for persons or families who 
are elderly or have handicaps or disabilities, consisting of private 
apartments and central dining facilities in which a number of specific 
pre-established services are provided to tenants (short of those 
services provided by a health care facility that provides health related 
care and services recognized by the medicaid program). Tenants requiring 
additional services not provided by the facility will acquire them or 
provide for them within their own financial, familial, or social 
resources.
    Domestic farm laborers. Persons who receive a substantial portion of 
their income as laborers on farms in the United States, Puerto Rico, or 
the Virgin Islands and either are citizens of the United States, or 
reside in the United States, Puerto Rico, or the Virgin Islands after 
being legally admitted for permanent residence, and may include the 
immediate families of such persons, including retired or disabled 
domestic farm laborers as defined in subpart D of part 1944 of this 
chapter.
    Elderly (senior citizen). A person who is at least 62 years old. The 
term elderly (senior citizen) also means individuals with handicaps or 
disabilities as separately defined in this paragraph, regardless of age.
    Elderly family. A household where the tenant, cotenant, member, or 
comember (individual) is at least 62 years old, disabled or handicapped 
as defined separately in this paragraph. An elderly family may include a 
person(s) younger than 62 years of age who is essential to the care and 
well being of the person who is elderly or has handicaps or 
disabilities. (To receive an elderly family deduction, the person who is 
elderly, or has disabilities or handicaps must be the tenant or cotenant 
or member or comember.)
    Eligibility income. The calculated adjusted annual income which is 
compared to the income limits in Appendix 9 of HB-1-3550 (available in 
any Rural Development office).
    Familial status. This term means one or more individuals (who have 
not attained the age of 18 years) being domiciled with a parent or 
another person having legal custody of such individual or individuals; 
or the designee of such parent or other person having such custody; with 
the written permission of such parent or other person. The protection 
against discrimination afforded by familial status shall apply to any 
person who is pregnant or is in the process of securing legal custody of 
any individual who has not attained the age of 18 years.
    Forms Manual Insert (FMI). A type of directive which includes a 
sample of the form and complete instructions for its preparation, use, 
and distribution.
    Group home. Housing that is occupied by individuals who are elderly, 
or have handicaps or disabilities sharing living space within a rental 
unit in which a group home resident assistant may be required.
    Household. One or more persons who maintain or will maintain 
residency in one rental or cooperative unit, but not including a 
resident assistant or chore service worker.
    Individual with disability. A person is considered disabled if the 
person meets the criteria or either of the following:
    1 The person has an inability to engage in any substantial gainful 
activity, but with use of auxiliary apparatus can otherwise participate 
in gainful activity, by reason of any medically determinable physical or 
mental impairment, where the disability:
    a Has lasted or can be expected to last for a continuous period of 
not less than 12 months, or which can be expected to result in death, 
and
    b Substantially impedes the ability to live independently, and
    c Is of such a nature that such ability could be improved by more 
suitable housing conditions, or
    d In the case of a sight impaired person who is at least 55 years 
old (within the meaning of sight impairment as determined in section 223 
of the Social Security Act), is unable, because of the sight impairment, 
to engage in substantial gainful activity in which he/she has previously 
engaged with some regularity over a substantial period of time.
    e Receipt of veteran's or Social Security Disability payments 
benefits for disability, whether service-oriented or otherwise does not 
automatically establish disability.
    2 The person has a developmental disability; a severe, chronic 
disability which;
    a Is attributable to a mental or physical impairment or combination 
of mental or physical impairment; and
    b Was manifested before age 22; and
    c Is likely to continue indefinitely; and
    d Results in substantial functional limitations in three or more of 
the following areas of major life activity:
    (1) Self care
    (2) Receptive and expressive language
    (3) Learning
    (4) Mobility
    (5) Self-direction
    (6) Capacity for independent living
    (7) Economic self-sufficiency
    e Reflects the person's need for a combination and sequence of 
special, interdisciplinary or generic care, or treatment, or

[[Page 223]]

for other services which are of lifelong or extended duration and are 
individually planned and coordinated.
    Individual with handicap.
    1 A person with a physical or mental impairment, that:
    a Is expected to be of long-continued and indefinite duration; and
    b Substantially impedes the person or is of such a nature that the 
person's ability to live independently could be improved by more 
suitable housing conditions.
    2 The term handicap further means, with respect to a person, a 
physical or mental impairment which substantially limits one or more 
major life activities; a record of such an impairment; or being regarded 
as having such an impairment. THIS TERM DOES NOT INCLUDE CURRENT ILLEGAL 
USE OF OR ADDICTION TO A CONTROLLED SUBSTANCE. As used in this 
definition:
    a Physical or mental impairment includes:
    (1) Any physiological disorder or condition, cosmetic disfigurement, 
or anatomical loss affecting one or more of the following body systems: 
neurological; musculoskeletal; special sense organs; respiratory, 
including speech organs; cardiovascular; reproductive; digestive; 
genito-urinary; hemic and lymphatic; skin; and endocrine; or
    (2) Any mental or psychological disorder, such as mental 
retardation, organic brain syndrome, emotional or mental illness, and 
specific learning disabilities. The term ``physical or mental 
impairment'' includes, but is not limited to, such diseases and 
conditions as orthopedic, visual, speech and hearing impairments, 
cerebral palsy, autism, epilepsy, muscular dystrophy, multiple 
sclerosis, cancer, heart disease, diabetes, human immunodeficiency virus 
(HIV) infection, acquired immunodeficiency syndrome (AIDS), mental 
retardation, emotional illness, drug addiction (other than addiction 
caused by current, illegal use of a controlled substance), and 
alcoholism.
    b Major life activities means functions such as caring for one's 
self, performing major tasks, walking, seeing, hearing, speaking, 
breathing, learning, and working.
    c Has a record of such an impairment means has a history of, or has 
been misclassified as having a mental or physical impairment that 
substantially limits one or more major life activities.
    d Is regarded as having an impairment means:
    (1) Has a physical or mental impairment that does not substantially 
limit one or more major life activities but that is treated by another 
person as constituting such a limitation;
    (2) Has a physical or mental impairment that substantively limits 
one or more major life activities only as a result of the attitudes of 
others toward such impairment; or
    (3) Has one of the impairments defined in paragraph 2 a (1) and 2 a 
(2) of this definition but is treated by another person as having such 
an impairment.
    LH. Means Farm labor housing loans and/or grants.
    Limited equity. The amount of funds which have accumulated in the 
cooperative member's patronage capital account and as further described 
in subpart E of part 1944 of this chapter.
    Low-income household. A household having an adjusted annual income 
not exceeding the maximum low-income limit stated in Appendix 9 of HB-1-
3550 (available in any Rural Development office) which is periodically 
updated.
    Management agent. The firm or individual engaged by the borrower and 
charged with the responsibility to manage the project in accordance with 
a written agreement.
    Management agreement. The written agreement between the borrower and 
management agent setting forth the management agent's responsibilities 
and fees for management services.
    Management fee. The compensation for providing overall management 
services for a Multiple Family Housing (MFH) project as described in the 
management plan. The fee is compensation for the time, expertise, and 
knowledge required to direct and oversee the present and future 
operation of the project. A management fee does not include the 
compensation paid to a site manager.
    Management plan. The primary management charter constituting a 
comprehensive description of the detailed policies and procedures to be 
followed in managing a project.
    Management reserve. That portion of the cooperative occupancy charge 
which is designated for payment of professional management services.
    Member/comember. A person(s) who has executed documents pertaining 
to a cooperative housing type of living arrangement and has committed 
himself/herself to upholding the cooperative concept.
    Migrant. A domestic farm laborer who works in any given local area 
on a seasonal basis and relocates his or her place of residence as farm 
work is obtained in other areas during the year.
    Minor. A person who is a Dependent of the tenant, cotenant, member 
or comember under 18 years of age. A dependent person age 18 or older 
who is a full-time student is treated as a minor.
    Moderate-income household. A household having an adjusted annual 
income within the maximum moderate-income limit stated in Appendix 9 of 
HB-1-3550 (available in any Rural Development office).
    Net family assets.

[[Page 224]]

    1 Net family assets include cash on hand and the value of savings, 
certificates of deposit, and dollars in checking accounts reported as 
``cash on hand.'' It will be such amounts reported on the day of third 
party verification. This definition also includes the net cash value of 
real property, cash value of whole life insurance policies, IRAs, market 
value of bonds and other forms of capital, or personal property held as 
investments, irrespective of location, minus debts against them, minus 
cost of converting such assets to cash. Examples of conversion costs are 
penalties for early withdrawal, broker/legal fees assessed to sell an 
asset, and settlement costs for real estate transactions.
    2 Net family assets also include the value of equity of any business 
or household assets disposed of by a member of the household for less 
than fair market value (including disposition in trust, but not in a 
foreclosure or bankruptcy sale) in excess of the consideration received 
therefrom during the 2 years preceding the effective date of 
certification/recertification. In the case of a disposition as part of a 
divorce settlement, the disposition shall not be considered to be for 
less than fair market value if the household member receives important 
consideration not measurable in dollar terms.
    3 Income from net family assets which is included in annual income 
is determined as follows:
    a If net family assets equal $5,000 or less, annual income includes 
the actual income derived from the net family assets.
    b If net family assets exceed $5,000, annual income includes the 
greater of:
    (1) Actual income derived from all net family assets, or
    (2) A percentage of the cash value of such assets based on the Bank 
Passbook annual savings rate.
    4 Net family assets exclude:
    a Interests in Indian trust land.
    b The value of necessary items of personal property such as 
furniture and automobile(s), and the debts against them.
    c The assets that are a part of the business, trade, or farming 
operation in the case of any member of the household who is actively 
engaged in such operation.
    d The value of a trust fund (i.e., for a minor or a legally 
incompetent household member) that has been established and the trust is 
not revocable by, or under the control of, any member of the household, 
so long as the fund continues to be held in trust.
    e A vehicle specially equipped for the handicapped.
    f Face value of life insurance policies.
    g A cooperative member's patronage capital in the housing 
cooperative unit in which the family resides.
    h Prepaid funerary arrangements and expenses.
    i Retirement funds not accessible for withdrawal by a household 
member.
    j Assets legally owned but not accessible or that accrue income to 
someone else.
    k Savings accounts of dependent minors when such accounts are under 
the minor's social security number.
    New housing. Newly constructed or substantially rehabilitated RRH, 
RCH, or LH project financed by FmHA or its successor agency under Public 
Law 103-354. For new construction rental assistance (RA) purposes, it 
further means before any units are occupied.
    Nonprofit corporation. A corporation which is organized and operated 
for purposes other than making gains or profits for the corporation or 
its members; is legally precluded from distributing to its members any 
gains or profits during its existence; and in the event of its 
dissolution, is legally bound to transfer its net assets to a nonprofit 
corporation of a similar type or to a public corporation which will 
operate the housing for the same or similar purposes.
    Occupancy charge. The amount of money charged a cooperative member 
to cover his/her proportionate share of the cooperative's operating 
costs and cash requirements.
    Operational housing. A completed RRH, RCH, or LH project financed by 
FmHA or its successor agency under Public Law 103-354 which has been 
opened for occupancy and has at least been partially occupied by tenants 
or members.
    Overage. The portion of a tenant's or member's net contribution to 
shelter cost that exceeds basic rent.
    Pet. A commonly accepted domesticated household animal (i.e., dog, 
cat, bird, etc.) owned or kept by a tenant or member.
    Profit basis. Applies to an individual or organizational applicant 
who will operate the housing at rental rates low- and moderate-income 
nonelderly or nonhandicapped persons, and/or elderly and persons with 
handicaps of any income can afford, where return on initial investment 
is not limited to a certain percentage per year.
    Project. A project is the total number of rental or cooperative 
housing units that are operated under one management plan with one loan 
agreement/resolution.
    RCH means Rural Cooperative Housing Loans.
    Rental agent. The individual responsible for the leasing of the 
units. If other than the borrower, this individual may be hired by the 
borrower or the management agent as specified in the management plan.
    Rental assistance (RA). RA, as used in this exhibit, is the portion 
of the approved shelter cost paid by FmHA or its successor agency under 
Public Law 103-354 to compensate for the difference between the approved 
shelter cost and the monthly tenant contribution as calculated according 
to paragraph IV

[[Page 225]]

of this exhibit. When the monthly gross tenant contribution is less than 
the approved utility allowance which is billed directly to and paid by 
the tenant, the owner will pay the tenant that difference according to 
paragraph IX A 2 of exhibit E of this subpart. RA used in cooperative 
housing will be calculated in the same manner.
    Resident assistant. A person(s) residing in a tenant's housing unit 
who is essential to the well-being and care of the person(s) who are 
elderly or have handicaps or disabilities residing in the unit, but is 
not obligated for the person's financial support and would not be living 
in the unit except to provide the needed support services. While the 
resident assistant may be a family member, the resident assistant may 
not be a dependent of the household for tax purposes and is not subject 
to the eligibility requirements of a tenant or member. A resident 
assistant is not a chore service worker. A resident assistant may 
function in any type of housing affected by this subpart.
    RHS means Rural Housing Site loans.
    RRH means Rural Rental Housing loans.
    Service agreement. A written agreement between the borrower and a 
service provider detailing the specific service to be provided, the cost 
of the service, and the length of time the service will be provided.
    Service plan. A written plan describing how services will be 
provided to a FmHA or its successor agency under Public Law 103-354 
financed project. At a minimum, the plan must specify the services to be 
provided, the frequency of the services, who will provide the services, 
how tenants will be advised of the availability of services, and the 
staff needed to provide the services.
    Shelter cost. Consists of basic or note rate rent plus utility 
allowance when used. Basic or note rate rent must be shown on the 
project budget for the year and approved according to paragraph XII of 
this exhibit. Utility allowances, when required, must be determined and 
approved according to part 1944, subpart E, exhibit A -6, of this 
chapter. Any changes in rental rates or utility allowances must be 
processed according to exhibit C of this subpart. The shelter cost in a 
cooperative housing project will consist of occupancy charge plus 
utility allowance.
    Site manager. The individual employed by the borrower or the 
management agent who lives at or near the project site and is 
responsible for the day-to-day operations of the project. A site manager 
residing at the project site may also be referred to as a resident 
manager. A site manager is not an ``independent contractor.''
    Tenant contribution. The portion of the approved shelter cost paid 
by the tenant household (tenant rent). For tenants not receiving HUD 
Section 8, this amount will be calculated according to Form FmHA or its 
successor agency under Public Law 103-354 1944-8. For tenants receiving 
HUD Section 8, this will be the amount referred to on HUD Form 50059, 
``Certification and Recertification of Tenant Eligibility,'' (or other 
HUD approved Form), as family contribution. The proportion of tenant 
income and adjusted income paid as the tenant contribution will vary 
according to the type of subsidy provided to the household.
    Tenant/cotenant. A person(s) who has signed a lease and is, or will 
be, an occupant of a unit in an RRH or LH project.
    Utility allowance. A monetary allowance used by a tenant or member 
to pay the utility cost portion of their total shelter cost when such 
amounts are not otherwise included in project rents or occupancy 
charges.
    Very low-income household. A household having an adjusted annual 
income within the maximum very low-income limit stated in Appendix 9 of 
HB-1-3550 (available in any Rural Development office).
    III Borrower Responsibilities:
    A General. All borrowers are responsible for:
    1 Understanding the distinction between FmHA or its successor agency 
under Public Law 103-354 supervised credit and the credit provided by 
other Federal, State, or conventional loans.
    2 Meeting the objectives for which the loan and/or grant was made 
and complying with the respective program requirements.
    3 Understanding the unique characteristics and function of their 
particular type of borrower entity as provided by charter, articles of 
incorporation, by-laws, and/or statute.
    4 Assuring that a site manager or contact person is in close 
proximity to their MFH project.
    5 Complying with the provisions of their security instruments and 
any directive issued by FmHA or its successor agency under Public Law 
103-354.
    6 Following the approved management plan and reporting to FmHA or 
its successor agency under Public Law 103-354 any changes to the 
management plan for prior consent, and when appropriate, reporting and 
obtaining FmHA or its successor agency under Public Law 103-354 prior 
consent to any change of management agent.
    B Borrowers without a loan agreement. Unless otherwise specified, 
these borrowers are exempt from the requirements of this subpart, except 
for exhibit C of this subpart, as long as the borrower is not in default 
of any program requirement, security instrument, payment, or any other 
agreement with FmHA or its successor agency under Public Law 103-354. 
However, except for LH borrowers not charging for on-farm labor housing, 
these borrowers must provide evidence of tenant eligibility.

[[Page 226]]

    C Borrowers with a loan and/or grant agreement in a multiple unit 
project. These borrowers are responsible for meeting the requirements 
and conditions of their agreement/resolution and the requirements of 
this subpart.
    D Borrowers with governing bodies. The elected or appointed 
officials comprising the governing body of the borrower are responsible 
for:
    1 Maintaining records of all current members and maintaining 
membership at the required level.
    2 Holding meetings as required by the organizational documents, and 
as otherwise necessary, to provide proper control and management of its 
operations, and to keep the membership informed.
    3 Coordinating and monitoring activities of established cooperative 
committees.
    E Borrowers with a membership. Members of a membership type borrower 
are responsible for full support of the project and operation by:
    1 Promptly paying any dues, fees, and other required charges.
    2 Electing responsible officials.
    3 Complying with organization rules and regulations.
    4 Participating in annual and special meetings.
    5 Participating in established cooperative committees to which they 
have voluntarily accepted assignment.
    6 Carrying out duties and services necessary to maintain the 
cooperative property for which they have voluntarily accepted 
assignment.
    F Delegation of responsibility and authority. The borrower may 
delegate or assign management responsibilities to a property manager 
such as a management agent, a site manager, or as appropriate, a 
caretaker. Delegations or assignments of duties and responsibility will 
be included in written documents such as management agreements and job 
descriptions. FmHA or its successor agency under Public Law 103-354 will 
hold the borrower ultimately responsible for management of the project. 
FmHA or its successor agency under Public Law 103-354 may require a 
borrower to change the plan of project management and/or make 
appropriate redelegations of project management responsibility to 
achieve program objectives.
    IV Rent Subsidy Opportunities: The available subsidy programs should 
be considered at the time of developing a project proposal and during 
project operation as they may be available to meet the tenants' needs. 
Congregate type services such as meals, limited homecare, medical, 
transportation, and social activities are not included in these subsidy 
programs. The subsidy programs are as follows:
    A FmHA or its successor agency under Public Law 103-354 Interest 
Credit--RRH and RCH Loans. Regulations are contained in exhibit H to 
this subpart and include:
    1 Plan I--Only those borrowers who received this type of interest 
subsidy prior to October 27, 1980, may continue to utilize this Interest 
Credit Plan. Those broadly-based nonprofit corporations and consumer 
cooperatives may continue operating under this plan provided:
    a Occupancy is limited to very-low or low-income non-elderly; very 
low-, low- and moderate-income person(s) who are elderly or have 
disabilities or handicaps.
    b Budgets and rental rates are based on a 3 percent loan 
amortization.
    2 Plan II--This interest subsidy is available to broadly-based 
nonprofit corporations, consumer cooperatives, State or local public 
agencies, or to other organizations and individuals operating on a 
limited profit basis.
    a Occupancy is limited to very-low, low-and moderate-income persons 
except as noted in paragraph VI D 2 i of this exhibit.
    b Budgets are prepared showing two rental or occupancy charge rates, 
basic and note rate. The minimum (basic) rate for persons not receiving 
rental assistance is based on a 1 percent subsidized rate. The maximum 
note rate is based on the loan amortized at the interest rate shown in 
the promissory note.
    c Tenant's or member's contribution for shelter cost, calculated 
according to the FMI for Form FmHA or its successor agency under Public 
Law 103-354 1944-8, may not exceed the highest of:
    (1) Thirty percent of monthly adjusted income, or
    (2) Ten percent of gross monthly income, or
    (3) If the household is receiving payment for public assistance from 
a public agency, the portion of such payments which is specifically 
designated by that agency to meet the household's shelter costs (see 
example in 1k of the definition of annual income in paragraph II of this 
exhibit), or
    (4) The basic rent or occupancy charge when no RA is available from 
FmHA or its successor agency under Public Law 103-354.
    d RRH borrowers whose loans were approved on or after August 1, 
1968, may convert from Plan I to Plan II. When they are presently a full 
profit operation, they may convert to Plan II by executing a new or 
amended loan resolution or loan agreement and an interest credit and RA 
agreement according to exhibit H of this subpart.
    e RRH borrowers with Plan I Section 8 interest credit agreements may 
change to Plan II when the 1 percent or 2 percent interest reduction is 
insufficient for the HUD contract rent to meet budgeting needs. The 
change of interest credit plan will be approved in accordance with 
paragraph VII B of exhibit C of this subpart (available at any FmHA or 
its successor agency under Public Law 103-354 office). A new Form FmHA 
or its

[[Page 227]]

successor agency under Public Law 103-354 1944-7, ``Multiple Family 
Housing Interest Credit and Rental Assistance Agreement,'' is required.
    B Rental assistance (RA) program--FmHA or its successor agency under 
Public Law 103-354. This is a subsidy program available to RRH, RCH, and 
LH borrowers to assist very-low and low-income tenants and members in 
paying their shelter cost. RA is not authorized for tenants or members 
whose adjusted income is initially above the low-income level. RA is not 
available to LH borrowers who are individual farmowners, partnerships, 
family corporations, or an association of farmers. RRH borrowers with 
loans approved on or after August 1, 1968, must be operating under, or 
change to, Interest Credit Plan II to receive RA. Full profit borrowers 
may utilize RA by converting to a limited profit operation. The 
provisions of the RA program are covered in detail in exhibit E of this 
subpart.
    C HUD project based Section 8 and tenant based Section 8 Rental 
Certificate or Rental Voucher Program. These subsidy programs are 
administered by HUD or others authorized to administer the program such 
as State Housing Finance Agencies or the local public housing agency. 
Projects operating under the Memorandum of Understanding between FmHA or 
its successor agency under Public Law 103-354 and HUD (available at the 
FmHA or its successor agency under Public Law 103-354 National Office, 
Washington, DC 20250) will also be subject to the requirements of the 
Housing Assistance Payments Contract executed by the borrower. Projects 
accepting tenants utilizing Section 8 rental certificates or rental 
voucher assistance assigned by a local public housing agency will also 
comply with any requirements imposed by such agency. However, in all 
cases, tenants receiving section 8 assistance must meet the eligibility 
requirements specified in paragraph VI D of this exhibit. Requirements 
that conflict with FmHA or its successor agency under Public Law 103-354 
requirements should be referred to the Servicing Official for guidance. 
(Generally, the most restrictive HUD or FmHA or its successor agency 
under Public Law 103-354 requirements or limitations will apply.)
    D State provided subsidy. This is a subsidy program provided and 
funded by some States and available to RRH borrowers to assist tenants 
on approximately the same basis as the FmHA or its successor agency 
under Public Law 103-354 RA Program. The assistance is in accordance 
with a CONTRACT between the borrower and the State and concurred in by 
FmHA or its successor agency under Public Law 103-354.
    E Privately provided subsidy. This is a subsidy program whereby the 
project owner(s) or others enter into an Agreement with FmHA or its 
successor agency under Public Law 103-354 to provide and fund subsidy to 
tenants of the project on approximately the same basis as the FmHA or 
its successor agency under Public Law 103-354 RA Program. In some 
instances, the agreement may include a limit on the number of units and 
a Per Unit Ceiling on the amount of assistance. Privately provided 
subsidies are typically referred to as private rental assistance.
    V Management Operations:
    A Management plan.
    1 A comprehensive management program is essential to the successful 
operation of a project. A written plan is the primary ingredient which 
should describe the detailed objectives, policies and procedures in 
managing the project. A management plan is required to be submitted to 
the Agency for all projects, new and existing, except for those on-farm 
LH units where rent is not required. The plan should be developed in 
detail commensurate to project size and complexity and should be 
reviewed annually and updated at least triennially by the borrower. To 
reflect project needs and to meet current program objectives, use of an 
addendum is permitted when few changes are made in the update of the 
plan. Exhibit B-1 of this subpart outlines the requirements of the plan.
    2 In the case of congregate housing/group homes, the management plan 
should describe, in addition to the preceding general items, the 
specific items in paragraph V B of exhibit J of this subpart.
    B Identity of interest disclosure.
    1 General principles. FmHA or its successor agency under Public Law 
103-354 requires that applicants/borrowers and/or management agents 
describe and fully justify any identity of interest, or appearance of 
same, that exists or will exist between the borrower, management agent, 
suppliers of materials and/or services, or vendors in any combination of 
relationship. Identity of interest will be construed as existing between 
the applicant/borrower and/or management entity and suppliers of 
materials and/or services described under but not limited to any of the 
following conditions:
    a When there is any financial interest between the applicant/
borrower and/or management entity and the supplying entity.
    b When one or more of the officers, directors, stockholders or 
partners of the applicant/borrower or management entity is also an 
officer, director, stockholder, or partner of the supplying entity.
    c When any officer, director, stockholder, or partner of the 
applicant/borrower and/or management entity has any financial interest 
whatsoever in the supplying entity.
    d When the supplying entity advances any funds to the applicant/
borrower and/or management entity.
    e When the supplying entity provides and pays on behalf of the 
applicant/borrower and/

[[Page 228]]

or management entity the cost of any materials and/or services in 
connection with obligations under the management plan/management 
agreement.
    f When the supplying entity takes stock or any interest in the 
applicant/borrower and/or management entity as part of the consideration 
to be paid them.
    g When there exist or come into being any side deals, agreements, 
contracts or understandings entered into thereby altering, amending, or 
cancelling any of the management plan/management agreement documents, 
except as approved by FmHA or its successor agency under Public Law 103-
354.
    2 Any individual or organization sharing an identity of interest for 
the project must certify by memorandum that it is a viable, ongoing 
trade or business qualified and properly licensed to undertake the work 
for which it intends to contract.
    a FmHA or its successor agency under Public Law 103-354 Forms 1944-
30, ``Identity of Interest (IOI) Disclosure Certificate,'' and FmHA or 
its successor agency under Public Law 103-354 1944-31, ``Identity of 
Interest (IOI) Qualification Form,'' (available in any FmHA or its 
successor agency under Public Law 103-354 Servicing office) will be 
completed and submitted as part of the management plan. Management 
agents will sign either form as ``applicant.''
    b The initial disclosure shall be in effect for a period of 3 years 
and renewed every 3 years thereafter, except if there are any changes in 
the business practices of the applicant/borrower and/or management 
entity during the interim years that include identity of interest 
concerns, the entity must file amended Forms FmHA or its successor 
agency under Public Law 103-354 1944-30 and FmHA or its successor agency 
under Public Law 103-354 1944-31.
    c The forms provide notification to the entities of the penalty, 
under law, for erroneously certifying to the statements contained 
therein.
    d Debarment actions will be instituted against entities who fail to 
disclose an identity of interest in accordance with the provisions of 
subpart M of part 1940 of this chapter (available in any FmHA or its 
successor agency under Public Law 103-354 office).
    C Management agreement. The management agreement is the primary 
document by which the management agent is guided, evaluated, and 
compensated. It bears a close relationship to the management plan. A 
management agreement is required except in cases where the borrower 
(owner) fills the role of manager. Requirements of a management 
agreement are listed in exhibit B-2 of this subpart. Exhibit B-3 of this 
subpart is a sample management agreement. The two types of agreements 
acceptable to FmHA or its successor agency under Public Law 103-354 are 
described as follows:
    1 The owner hires a professional management agent to oversee and 
operate the project. The management agent may provide a site manager for 
on-site management and/or caretaker when justified by the size of the 
project. A qualifications statement by the management agent is required 
by the borrower and FmHA or its successor agency under Public Law 103-
354. Exhibit B-4 of this subpart provides a guideline for preparing the 
statement.
    2 The owner maintains all or a part of the management role. The 
owner may use the services of a site manager in providing onsite 
management and/or services of a caretaker when justified by the size of 
the project. FmHA or its successor agency under Public Law 103-354 
requires a qualifications statement by the owner who proposes to 
personally provide the management to determine management capability. 
Exhibit B-5 of this subpart provides a guideline for preparing the 
statement.
    D Responsibility. The management plan and management agreement must 
be based on applicable provisions of local, State, and Federal statutes 
and the regulatory requirements of the loan used to finance the project, 
regardless of the management system used. The owner remains totally 
responsible to FmHA or its successor agency under Public Law 103-354 for 
the project, regardless of the authority delegated by the owner to the 
management agent.
    E Compensation for project administration.
    1 General principles. Compensation for project administration is the 
remuneration for performance of administrative duties and 
responsibilities by those selected by the owner and approved by the 
Agency as having sufficient background and experience to manage project 
operations. The administrative duties and responsibilities must be set 
out in the management plan along with the manner in which compensation 
will be determined. It is the option of the project owners to determine 
whether to use a management agent to carry out project administrative 
functions in full or in agent to carry out project administrative 
functions in full or in part. Should a management agent be used, it is 
the option of the owner to decide which duties the management agent will 
perform and which duties will be performed by others. Whenever the owner 
chooses to use a management agent, a management agreement must be used. 
The management agreement must describe the duties and compensation for 
the services provided by the management agent. Any other duties and 
compensation for project administration not covered in by the management 
agreement, may also be considered as project expenditures. All project 
administrative expenditures must be evaluated by the Agency as being 
reasonable for the services provided,

[[Page 229]]

including the reasonableness of the expenditures for management agent 
services.
    2 Review of administrative expenses. The Agency is responsible for 
determining that project administrative expenses are reasonable for the 
services performed in administering project operations in an acceptable 
manner. Therefore, the Agency may use data from FmHA or its successor 
agency under Public Law 103-354 projects or other sources for use in 
making this determination. The Agency may establish guidelines for 
administrative expenses for use within a State or area. Administrative 
expenses falling within such guidelines for services typically performed 
under the guidelines may expect expeditious action on requests for 
budget approval. Administrative expenses falling outside of such 
guidelines for services typically performed under the guidelines may 
also warrant approval when justified. The management agent or owner will 
be primarily responsible for providing evidence that such fees are 
reasonable for the services performed when the administrative expenses 
are falling outside of any established guidelines.
    3 Review of management fees. The Agency is responsible for 
determining that the fees paid for services performed by management 
agents are reasonable. Therefore, the Agency may use data from FmHA or 
its successor agency under Public Law 103-354 projects or other sources 
for use in determining what fees are reasonable for the services 
performed in an acceptable manner by management agents. The Agency may 
establish guidelines for management fees for use within a State or area. 
Management fees falling within such guidelines for services typically 
performed under the guidelines may expect expeditious action on requests 
for approval of management agreements and budgets. Management fees 
falling outside of those guidelines may also warrant approval when 
justified. The management agent or owner will be primarily responsible 
for providing evidence that such fees are reasonable for the services 
performed when management fees are falling outside of any established 
guidelines. Whenever disputes arise as to whether an administrative 
expense is appropriate for listing under the management fee, or as to 
some other project expense, the Agency will seek to mutually resolve 
such concerns. This will be done by using the approved management 
agreement or management plan to determine which services are being 
performed by the management agent.
    4 Project administrative expenses.
    a Acceptable administrative expenses. Those administrative expenses 
necessary to successfully carry out project operations may be approved 
provided such expenses do not duplicate any such expenses which may be 
included in the management fee as specified in the approved management 
agreement. The instructions that accompany Form FmHA or its successor 
agency under Public Law 103-354 1930-7, ``Multiple Family Housing 
Project Budget,'' provide further guidance on acceptable project 
administrative expenses. Preparation of an IRS required report for the 
project, if required (e.g., Schedule K-1 (IRS Form 1065), ``Partner's 
Share of Income, Credits, Deductions, etc.'' is an acceptable project 
expense.)
    b Unacceptable administrative expenses. Those administrative 
expenses not necessary to successfully carry out project operations may 
be denied. Preparation of income tax returns for project owners are 
unacceptable project expenses.
    5 Projects with a management agent. When management agents are used, 
the duties and compensation of the management agent must be set out in a 
management agreement. All such agreements are subject to Agency review 
and concurrence. The amount of compensation for the services rendered is 
to be negotiated between the owner and the management agent but is 
subject to Agency concurrence with the management agreement and approval 
in the project budget.
    6 Owner-managed projects. The owner will be authorized to manage the 
rental project only when FmHA or its successor agency under Public Law 
103-354 determines in writing that the owner (either as the individual 
borrower or as a part of an organizational borrower) has the necessary 
management capabilities.
    a Projects with owners with identity-of-interest relationships to 
the management agent will not be considered as an owner managed project. 
A typical management fee may be charged as an expense to the project. 
The compensation must be according to the provisions of paragraph V E of 
this exhibit and be reasonable, earned, and not exceed the normal cost 
of similar services, had such services been provided by an independent 
management agent.
    b Since cooperatives are to be organized as self-managed entities, 
the board of directors is not expected to have management experience. In 
lieu of this experience, the adviser to the board will provide 
management guidance during the formative years of the cooperative. Under 
the adviser's direction, the cooperative will become accustomed to this 
role and thus gain the ability to assume management responsibilities. 
If, after the required trial period outlined in subpart E of part 1944 
of this chapter, the cooperative's board is unable to assume management 
responsibilities, professional management will be hired by the 
cooperative. We would expect the amount of compensation paid to a 
cooperative adviser to be less than that paid to other types of 
management agents in order to provide the members with some equity in 
the early years. (See subpart E of part 1944 of this chapter).

[[Page 230]]

    7 Initial rent-up fees. Payment of fees for a one-time effort to 
achieve initial rent-up of a newly constructed rental project is 
permitted when it is determined necessary and documented by the FmHA or 
its successor agency under Public Law 103-354 loan approval official and 
the loan applicant. Rent-up fees should be paid on a per-unit basis only 
after each unit has been occupied by the initial tenant. Payment of the 
rent-up fee and other project management start-up expenses should 
generally be made from the 2 percent initial operation and maintenance 
fund. A person or firm, preferably the management agency, may be 
compensated at a rate negotiated with the applicant/borrower that 
represents reasonable compensation for the incurred marketing cost and 
project management start-up expenses.
    F Site manager and/or caretaker services. The borrower is 
responsible for describing the plan for site management in the 
management plan. The plan needs to identify whether the site manager 
will occupy one of the project units as a revenue producing unit or as a 
rent free unit, or will live away from the project. The on-site services 
of a site manager and/or caretaker may be used when justified by the 
size, composition, and location of a project, whether the project is 
managed by a management agent or by the owner. There should be a written 
agreement between the owner or the management agent and the site manager 
to define the role and duties and compensation for the site manager and 
to provide a basis for evaluating the site manager's performance. FmHA 
or its successor agency under Public Law 103-354 may require an on-site 
resident manager and/or caretaker to assure that the loan objectives are 
met and/or to protect the tenant's or Government's interests. It is not 
mandatory that the site manager and/or caretaker meet tenant occupancy 
eligibility requirements. However, if management considers the occupied 
unit to be a rental unit, the rent paid will be determined according to 
the site manager's/caretaker's income.
    1 Calculation of rental rate for site manager or caretaker. The 
expense of providing the unit occupied by the site manager or caretaker 
will be included in the project budget the same as the expense for other 
nonrevenue producing portions of the project such as a laundry or 
community room. The rental rate will be determined as follows:
    a When used as a revenue producing unit at approved rental rates, 
the salary paid to the site manager and/or caretaker will be included in 
the project operation and maintenance expenses. The same amount will be 
included in the annual income of the site manager and/or caretaker. The 
site manager and/or caretaker may be an eligible or ineligible tenant 
and their rent contribution will be based on their total income from all 
sources as shown on the tenant certification form.
    b When the unit is used as a nonrevenue producing unit, the project 
cost of providing the unit will be treated the same as those of other 
nonrevenue producing portions of the project. Project rental rates will 
be established as if the unit did not exist as living quarters. Debt 
payment will be as if the unit were rented at basic rent. A tenant 
certification form will not be prepared for this situation.
    2 Owner occupancy. With the prior approval of the State Director, 
owners may occupy a unit in the project when the owner will manage the 
project rather than hiring a management agent or a site manager. The 
size, composition, and location of the project must justify the services 
of a site manager or caretaker, and the State Director must determine 
the owner is capable of performing these services. The rental rate will 
be included as described in paragraph V F 1 of this exhibit.
    G Projects without a site manager and/or caretaker. Projects without 
a site manager and/or caretaker must have, at a minimum, a tenant who 
will serve as a contact person or have a person who is easily accessible 
to the project who is able to represent the project manager or owner on 
maintenance and management matters.
    H Supplemental services. Supplemental services include laundry, 
vending machine, commissary store, pay telephones, or similar tenant 
benefit services.
    1 Borrower provided supplemental services.
    a Income from supplemental services and/or equipment and expense of 
acquisition and replacement cost shall be planned and recorded as part 
of the annual operating budget.
    b Failure to account for all proceeds is a fraudulent act.
    2 Consignor provide supplemental services.
    a A written contact between the borrower and consignor is required. 
The contract terms should follow ``industry'' standards for the type of 
service.
    b Comparability in all respects to conventional supplemental 
services contracts shall govern contract with identity of interest 
between the contracting parties.
    c The borrower's share of income will be shown as planned and actual 
income in the project operating budget.
    d Failure by the contractual parties to account for all proceeds is 
a fraudulent act.
    VI Renting Procedure:
    A General. Preparations for initial rent-up, occupancy and 
maintenance should begin at least 90 to 120 days ahead of the projected 
completion date of the project as described in Sec.  1944.235 of subpart 
E of part 1944 of this chapter. This procedure will include a prerent-up 
conference between the FmHA or its successor agency under Public Law 
103-354 Serving Official, the borrower, and the

[[Page 231]]

person(s) responsible for project management. Decisions to be made 
concern the advertisement of available units, affirmative marketing 
practices, tenant eligibility, and tenant selection criteria. It is 
important that this conference precede active marketing and the receipt 
of tenant applications.
    B Accommodations in communication.
    1 The borrower shall take appropriate steps to ensure effective 
communication with applicants, tenants, members, and members of the 
public with handicaps and disabilities.
    a The borrower shall furnish appropriate auxiliary aids (electronic, 
mechanical, or personal assistance) where necessary to afford an 
individual with handicaps or disabilities an equal opportunity to 
participate in and enjoy the benefits of a MFH project receiving FmHA or 
its successor agency under Public Law 103-354 financial assistance.
    (1) In determining what auxiliary aids are necessary, the borrower 
shall give primary consideration to the requests of an individual with 
handicaps or disabilities.
    (2) The borrower is not required to provide individually prescribed 
devices, readers for personal use or study, or other devices of a 
personal nature.
    b Where a borrower communicates with applicants and tenants or 
members by telephone, telecommunication devices for deaf persons (TDD's) 
or equally effective communication systems shall be available for use.
    2 The borrower shall adopt and implement procedures to ensure that 
interested persons (including persons with impaired vision or hearing) 
can obtain information concerning the existence and location of 
accessible services, activities, and facilities in the project and 
community.
    3 This paragraph does not require a borrower to take any action that 
the borrower can demonstrate would result in a fundamental alteration in 
the nature of the project or operation or an undue financial and 
administrative burden. If an action would result in such undue 
alteration or burden, the borrower shall take any other action that 
would otherwise ensure that, to the maximum extent possible, individuals 
with handicaps or disabilities receive the benefits and services of the 
project.
    C Affirmative Fair Housing Marketing Plan. All borrowers with five 
or more rental units must meet the requirements of Sec.  1901.203(c) of 
subpart E of part 1901 of this chapter by preparing and submitting HUD 
Form 935.2, ``Affirmative Fair Housing Marketing (AFHM) Plan.'' Records 
must be maintained by the borrower reflecting efforts to fulfill the 
plan and will be reviewed by FmHA or its successor agency under Public 
Law 103-354 and updated by the borrower during compliance reviews for 
title VI of the Civil Rights Act of 1964. The approved plan will be 
posted by the borrower for public inspection at the borrower's project 
site, rental office, or at any other location where tenant applications 
are received for the project. In developing the plan, the following 
items should be considered:
    1 Direction of marketing activities. The plan should be designed to 
attract applications for occupancy from all potentially eligible groups 
of people in the housing marketing area regardless of race, color, 
religion, sex, age, familial status, national origin, or handicap. The 
plan must show which efforts will be made to reach very low-income or 
low-income groups who traditionally would least likely be expected to 
apply for such housing without special outreach efforts.
    2 Marketing program. The applicant or borrower should determine 
which methods of marketing such as radio, newspaper, TV, signs, etc., 
are best suited to reach those very low-income or low-income groups who 
are least likely to apply for occupancy in the project. Marketing should 
not totally rely on ``word of mouth'' advertising. Appropriate social 
agencies and networks should be contacted to assist in reaching elderly 
(senior citizens), persons with handicaps, etc.
    a Advertising.
    (1) Frequency. The borrower should advertise availability of housing 
units in advance of their availability to allow time to receive and 
process applications, determine eligibility, and arrange for move-in of 
tenants or members in a smooth flow of project operation. Advertising by 
newsprint or electronic media should occur at least annually to promote 
project visibility, even if there is an adequate waiting list.
    (2) Posters, brochures, etc. Any radio, TV, or newspaper 
advertisement, pamphlets, or brochures used must identify the project's 
handicap accessibility and contain the appropriate fair housing logotype 
or the equal housing opportunity slogan. A copy of this proposed 
material is to be submitted along with the HUD Form 935.2 for approval. 
The nondiscrimination poster entitled ``And Justice For All,'' the 
``Fair Housing'' poster and the tenant grievance and appeals procedure 
must be displayed in the rental office. If the rental office is not on 
site, the items must be displayed in a common conspicuous place on the 
site.
    b Signage.
    (1) Permanent project sign. A permanent sign identifying the project 
is required for all MFH projects approved on or after September 13, 
1977. To meet minimum requirements for an existing or new project, the 
sign, subject to state or local code:
    (i) Must be located at the primary site entrance and be readable and 
recognizable from the roadside.
    (ii) Must be located near the site manager's (or contact person's) 
office when the project has multiple sites. Portable signs

[[Page 232]]

will be placed where vacancies exist at other site locations of a 
``scattered'' project.
    (iii) May be of any shape.
    (iv) For projects of 8 or more units, must have not less than 16 
square feet of area. Smaller projects may have smaller signs.
    (v) Including its supports, must be made of durable material.
    (vi) Must include the project name.
    (vii) Must show rental contact information including but not limited 
to the project's office location and a telephone number where applicant 
inquiries may be made.
    (viii) Must show the equal housing opportunity logotype (house 
symbol and slogan) as shown in exhibit B-11 of this subpart, OR the 
slogan ``Equal Housing Opportunity'' OR the statement ``We are pledge to 
the letter and spirit of U.S. policy for the achievement of equal 
housing opportunity throughout the nation. We encourage and support an 
affirmative advertising and marketing program in which there are no 
barriers to obtaining housing because of race, color, religion, sex, 
handicap, familial status, or national origin.'' The logotype and/or 
slogan must be permanently affixed, clearly visible and should be at 
least equal to approximately 3 to 5 percent of the sign area.
    (ix) May display the FmHA or its successor agency under Public Law 
103-354 logotype as shown in exhibit B-12 of this subpart.
    (2) Handicap accessibility signs.
    (i) Parking spaces. Accessible parking spaces shall be designated as 
reserved for the disabled by a sign showing the international symbol of 
accessibility (see exhibit B-13 of this subpart). The sign should be 
mounted on a post at a height readily visible from an occupied vehicle. 
In snow areas, the sign needs to be visible above piled snow.
    (ii) Handicap accessibility route. When the continuous unobstructed 
ingress/egress handicap accessibility route to a primary building 
entrance is other than the usual or obvious route, the alternate route 
for handicap accessibility shall be clearly marked with handicap symbols 
and directional signs to aid a handicapped person's ingress/egress to 
the building, through an accessible entrance, and to accessible common 
use and public and living areas.
    c Community contact. Community leaders and special interest groups 
such as community, public interest, religious organizations, and 
organizations for the handicapped should be contacted in small 
communities without formal communication media aimed at the group or 
groups least likely to apply for available housing. Community contacts 
should also be used in reaching specific elements of the community such 
as the elderly or particular ethnic groups determined least likely to 
apply for the available housing.
    d Rental staff. All staff persons responsible for renting the units 
must have had training provided on Federal, State, and local fair 
housing laws and regulations and in the requirements of fair housing 
marketing and in those actions necessary to carry out the marketing 
plan. Copies of instructions to the staff regarding fair housing must be 
attached to the AFHM plan according to the instructions for part 7 of 
HUD Form 935.2.
    3 Marketing records. The borrower will be required to develop and 
maintain a system to provide data to indicate to what extent the 
borrower is carrying out the objective of the AFHM plan.
    D Tenant eligibility and occupancy guidelines. The rental agent of 
the project must be knowledgeable about the FmHA or its successor agency 
under Public Law 103-354 tenant eligibility and occupancy requirements 
as they relate to a particular project. FmHA or its successor agency 
under Public Law 103-354 loans require occupancy of the unit by eligible 
tenants. Except for migrant farmworker tenants in LH projects, tenant/
applicants must occupy the housing unit they qualify for as their 
permanent residence on the provision they do/will not maintain a 
separate subsidized rental unit in a different location.
    1 Eligible tenants. The following tenant eligibility criteria will 
apply where appropriate, unless otherwise authorized such as in the case 
of LH as described in subpart D of part 1944 of this chapter.
    a To determine eligibility for occupancy, the applicant's 
eligibility income must be as defined in paragraph II and include income 
from net family assets as defined in paragraph II of this exhibit.
    b The adjusted annual income must meet the definition of very low-, 
low- or moderate-income as defined in paragraph II of this exhibit as 
required for that specific project for applicant selection, tenant 
contribution, and continued occupancy.
    c To determine eligibility for continued occupancy, the tenant's 
adjusted annual income must be determined at least once every 12 months. 
When the tenant's adjusted annual income exceeds the moderate-income 
limit established for the area in which the project is located, the 
tenant is no longer eligible and will be required to vacate the project 
according to the terms of the lease and paragraph VI D 6 of this 
exhibit. Continued occupancy by cooperative members will not be affected 
by this income criteria. Cooperative members, after initial 
certification of income eligibility, may remain members regardless of 
income.
    d In RRH projects operating on a Plan I basis, tenants will:
    (1) Be a very low-, low-, or moderate-income person who is elderly, 
or has handicaps, or disabilities, or
    (2) Be a very low or low-income nonelderly, nondisabled, or 
nonhandicapped person.
    e In RRH projects operating on a nonprofit or limited profit Plan II 
basis, tenants

[[Page 233]]

will be a very low-, low-, or moderate-income person regardless of age, 
disability, or handicapping condition.
    f In RRH projects operating on a full-profit basis, tenants will:
    (1) Be a person of any income who is elderly, or has handicaps, or 
disabilities, or
    (2) Be a very low-, low-, or moderate-income nonelderly, 
nondisabled, or nonhandicapped person.
    g In LH projects designed and operated either for year-round or 
seasonal occupancy, eligibility is established in subpart D of part 1944 
of this chapter.
    h Occupancy in RRH project units designated by FmHA or its successor 
agency under Public Law 103-354 as:
    (1) Family housing may be occupied by any combination of elderly, 
disabled, or handicapped, and/or nonelderly, nondisabled, or 
nonhandicapped tenants including those tenants with familial status. 
Marketing priorities for this category should not exclude one group over 
another.
    (2) Elderly housing must be occupied by tenants who are elderly, 
disabled, and/or handicapped but not at the exclusion of children if 
they are members of the ``elderly'' household, nor shall it be 
restricted exclusively for use by tenants who are disabled and/or 
handicapped.
    (3) Housing which consists of specific units in a project designated 
as family housing and other units designated as elderly housing units 
should be governed by paragraphs VI D 1 h (1) and (2) of this exhibit.
    (4) Congregate housing and group homes shall be occupied by persons 
described in the definitions for congregate housing and group home, 
respectively in paragraph II of this exhibit.
    i Tenant of member independence.
    (1) RRH, RCH, and LH housing. It shall be a tenant's or member's 
responsibility to determine the ability to meet the legitimate and 
uniformly applied requirements of tenancy, thus assuming risk and 
responsibility of living within and upon the project premises. It shall 
be the owner's or representative's responsibility to respond to requests 
for what reasonable accommodations the tenant or member may need, 
otherwise the owner or its representative MAY NOT under possible penalty 
prescribed by Pub. Law No. 100-430, 102 stat. 1619 (1988) codified at 42 
U.S.C. 3601 et seq:
    (i) Judge whether individuals with handicap or disability are 
capable of independent living.
    (ii) Require a physical examination as a condition for tenant or 
member selection.
    (iii) Impose conditional leases requiring individuals with handicaps 
or disabilities to participate in supportive services.
    (2) Congregate and group home housing and housing with handicap 
unit(s). Because the purpose of such housing is to provide specific 
supportive services to individuals, it is permissible for the owner or 
its representative to inquire only to the extent necessary in the case 
of congregate housing whether the project offers the services wanted by 
the individual and in the case of group home housing, whether the 
individual has a handicap or disability that would qualify the 
individual to occupy, or continue to occupy the housing.
    (3) Legal capacity. Tenants or members in FmHA or its successor 
agency under Public Law 103-354 financed MFH projects must possess the 
legal capacity to enter into a lease agreement, except where a legal 
guardian (an individual) may sign when the tenant or member is otherwise 
eligible and is a tenant residing in a group housing project.
    j For LH projects and units in RRH projects specifically designed 
and designated for the elderly, disabled, and/or handicapped as defined 
by FmHA or its successor agency under Public Law 103-354, occupancy is 
limited solely to those meeting the eligibility requirements for the 
specific type of project (i.e., domestic farm laborers, elderly, 
disabled, and/or handicapped). Eligible occupants in these projects may 
also include other persons who are usually household members of the 
families of the domestic farm laborer, or persons who are elderly, or 
have disabilities, or handicaps. Resident assistants or chore workers 
will not be considered members of the tenant's household.
    k A student or other seemingly temporary resident of the community 
who is otherwise eligible and seeks occupancy in an RRH or RCH project 
may be considered an eligible tenant when all of the following 
conditions are met:
    (1) Is either of legal age in accordance with applicable State law 
or is otherwise legally able to enter into a binding contract under 
State law.
    (2) The person seeking occupancy has established a household 
separate and distinct from the person's parents or legal guardians.
    (3) The persons seeking occupancy is no longer claimed as a 
dependent by the person's parents or legal guardians pursuant to 
Internal Revenue Service regulations, and evidence is provided to this 
effect.
    (4) The person seeking occupancy signs a written statement 
indicating whether or not the person's parents, legal guardians, or 
others provide any financial assistance and such financial assistance is 
considered as part of current annual income and is verified in writing 
by the borrower.
    l A domestic farm laborer may continue occupancy of an LH project 
after retirement (having reached age 55) or after becoming disabled 
[(determined to have an impairment which is expected to be of long-
continued

[[Page 234]]

and indefinite duration and substantially impedes the person's ability 
to earn a livelihood from farm labor (as certified by a licensed 
physician)].
    m A tenant who does not personally reside in a rental unit for a 
period exceeding 60 consecutive days, for reasons other than health or 
emergency, is considered ineligible for subsidy and shall be required to 
pay note rate rent in Plan II projects or 125 percent of rent in Plan I 
projects for the period of absence exceeding 60 consecutive days.
    (1) If the tenant continues to be absent from the unit, the borrower 
must notify the tenant by certified mail at least 30 days prior to the 
end of the leasing period, to occupy the living unit by the end of the 
lease period or the borrower will start termination proceedings.
    (2) In those cases where the tenant's lease does not contain the 
lease clause in paragraph VIII B 4 c of this exhibit, the tenant will be 
advised that the lease will not be renewed, unless replaced with a lease 
meeting current requirements.
    2 Occupancy policy and guidelines.
    a Objective. The objective of the occupancy policy and guidelines in 
FMHA financed projects is to achieve utilization of subsidized space 
without overcrowding or providing more space than is needed by the 
number of people in the household.
    b Policy.
    (1) FmHA or its successor agency under Public Law 103-354 does not 
specify the number of persons who may live in MFH housing units of 
various sizes.
    (2) The borrower must set reasonable occupancy standards which will 
assist as many people as possible without overcrowding the unit or the 
project and which will minimize vacancies.
    (3) In setting the occupancy standards, the borrower must comply 
with all reasonable State and local health and safety restrictions 
regarding the maximum number of occupants permitted to occupy a 
dwelling. In the absence of State or local health safety restrictions, 
overcrowding shall occur when the TOTAL occupancy level in a housing 
unit exceeds 2 people per habitable sleeping room, except that an 
additional person(s) may be allowed when a habitable sleeping room 
provides at least 50 square feet per person. A habitable sleeping room 
shall not include a kitchen, bathroom, hallway, or dining area.
    (4) In placing families on waiting lists and in assigning families 
to MFH housing, a borrower should allow families to choose whether to 
opt for larger or smaller units to permit families to occupy units of 
sufficient size, so that persons of opposite sex (other than spouses) or 
persons of same sex, persons of different or same generation, and 
unrelated or related adults may have separate bedrooms according to the 
particular needs of the family.
    (5) Borrowers may have different standards for different projects 
but such standards must not result in or perpetuate patterns of 
occupancy which would be inconsistent with title VI of the Civil Rights 
Act of 1964 or the Fair Housing Act.
    (6) For the purpose of determining unit size, borrowers need to 
include, as members of the household:
    (i) All full-time members of the household.
    (ii) Dependent minors who are away at school but live with the 
family during school recesses.
    (iii) Dependent minors who are subject to a joint custody agreement 
but live in the unit at least 50 percent of the time.
    (iv) An unborn child or a child in the process of being adopted by 
or granted custody of an adult.
    (v) A foster child residing in the unit, or a household child 
temporarily residing elsewhere in foster care.
    (vi) A live-in attendant.
    (7) Borrowers shall not provide bedroom space for others who are not 
members of the household such as adult children on active military duty, 
permanently institutionalized family members, or visitors.
    c Guidelines. These guidelines are designed to assist the borrower 
in implementing the occupancy policy into workable occupancy standards. 
The project occupancy standard should be available for review by 
applicant, tenant, member, and project representative upon request.
    (1) In setting objective occupancy standards, the borrower should 
set the standards to permit the tenant to select the unit size they deem 
appropriate to their needs insofar as overcrowding by the household does 
not happen and underutilization of the unit does not occur. The 
occupancy standard selected should attempt to reflect ideal ranges of 
occupant density. In developing an ideal occupancy standard, it should 
be based so that:
    (i) No more than two persons should be required to occupy a bedroom.
    (ii) Persons of different generations, persons of the opposite sex 
(other than spouses), and unrelated adults should not be required to 
share a bedroom.
    (iii) Children of the same sex may share a bedroom.
    (iv) Children, with the possible exception of infants, should not be 
required to share a bedroom with persons of different generations, 
including their parents.
    (2) These guidelines should result in the following ideal range of 
persons per housing unit:

------------------------------------------------------------------------
                                                 Occupant density range
                No. of bedrooms                -------------------------
                                                  minimum
------------------------------------------------------------------------
0.............................................            1            1

[[Page 235]]

 
1.............................................            1            2
2.............................................            2            4
3.............................................            3            6
4.............................................            5            8
5.............................................            7           10
------------------------------------------------------------------------

    For example, if the borrower adopts these standards, households with 
three people generally should be accomodated in a two bedroom unit and 
should not receive apartments with more than three bedrooms. Nor should 
such households be required to live in apartments with fewer than two 
bedrooms. A household of three persons could be permitted to live in an 
apartment with fewer than two bedrooms if the household so chooses, 
unless it would constitute overcrowding OR there is a state or local 
occupancy law forbidding occupancy of the unit by three or more persons.
    (3) If, because of a physical or mental handicap of a household 
member or a person associated with that household, a family may need a 
unit that is larger than the unit size suggested by the guidelines in 
paragraph VI D 2 c (2) of this exhibit, it may be an unlawful failure to 
make reasonable accommodation to deny such a family the opportunity to 
apply for and obtain such a unit.
    d These occupancy guidelines may serve also as general guidelines 
for migrant and on-farm LH. Projects developed in compliance with local 
and/or state design requirements will determine the appropriate 
occupancy standards for migrant LH. In dormitory type LH housing, there 
must be at least 400 cubic feet of habitable sleeping area for each 
person.
    e When there are no units of appropriate size available in the 
project:
    (1) The tenant may be admitted and/or remain, provided the unit is 
not overcrowded or underutilized.
    (2) The tenant may receive available rental subsidy if otherwise 
qualified by income.
    f When an occupied unit becomes overcrowded or underutilized and 
there is a waiting list for the size unit occupied:
    (1) The tenant must move to another unit in the project of adequate 
size and accommodation when it becomes available. If the tenant then 
refuses to move to the available unit, or if none is available.
    (2) Vacate the project within a reasonable time period established 
by the borrower as specified in the lease or by the end of the lease 
period, whichever is later.
    g To avoid prolonged vacancy and loss of revenue, management may 
permit temporary occupancy of specially designed handicapped accessible 
units by households not needing such specially designed features, under 
the following conditions:
    (1) No household needing the specially designed features of a 
handicapped accessible unit is available to occupy the unit and 
management has made a diligent effort to reach tenants who qualify for 
the specially designed unit;
    (2) The tenant agrees to transfer to an appropriate unit if and when 
it becomes available in the project once an applicant with handicaps 
needing the features of a handicapped accessible unit is on the waiting 
list and ready to move in;
    (3) The responsibility to pay all costs associated with the 
subsequent move to the appropriate unit shall be mutually determined 
between the owner and the tenant. The owner's share of cost, if any, may 
be a project expense; and
    (4) The appropriate lease clause in paragraph VIII C of this exhibit 
is incorporated in the tenant's lease.
    h Borrowers with RRH projects specifically built and designated for 
the elderly prior to October 27, 1980, with only a few or no one-bedroom 
units, may permit occupancy of two-bedroom units by single eligible 
tenants if this provision is included in the project occupancy policy. 
The occupancy policy should reflect the needs of the local market area. 
This eligibility determination made by management must be included in 
the tenant's lease and will entitle such tenant to all benefits without 
need for further FmHA or its successor agency under Public Law 103-354 
approval.
    i When a unit cannot be rented under the provisions in paragraph VI 
D 2 g and h of this exhibit, the Servicing Official may authorize an 
exception according to paragraph VI D 7 of this exhibit.
    j A tenant who was determined eligible and allowed to occupy under 
regulations in effect prior to October 1, 1986, who does not meet 
eligibility requirements regarding income or occupancy policy as 
prescribed in these regulations may be permitted continued occupancy in 
the same unit for the duration of their residency. This provision 
specifically refers to:
    (1) Elderly tenants of any income level who have occupied their 
unit, since before October 27, 1980.
    (2) Tenants who were determined eligible before October 27, 1980, 
but did not meet income and occupancy requirements on that date. 
Examples are:
    (i) Individual tenants occupying a unit with separate tenant 
certifications whose combined income on October 27, 1980, would 
disqualify joint tenancy.
    (ii) Tenant households whose composition did not meet the occupancy 
guidelines in paragraph VI D 2 c (2) of this exhibit.
    (3) Tenants who became income ineligible due to changes of income 
and shelter cost determination on October 1, 1986. This provision did 
not apply to normal increase of

[[Page 236]]

household income which may have made them ineligible before October 1, 
1986.
    k For each RRH project specifically designated for the elderly, the 
borrower or management may not prohibit, prevent, restrict, or 
discriminate against any tenant for continued occupancy or applicant for 
occupancy who owns or will keep a pet in their apartment unit unless the 
approved project pet rules are violated.
    l Nothing in this subpart requires that an apartment unit be made 
available to any individual whose tenancy would constitute a direct 
threat to the health and safety of other individuals or whose tenancy 
would result in substantial physical damage to the property of others, 
Except, when such threat can be removed by applying a reasonable 
accommodation.
    3 Reasonable accommodations.
    a The Fair Housing Amendment Act of 1988 requires persons to make 
reasonable accommodations in rules, policies, practices, or services, 
when such accommodations would afford a handicapped or disabled person 
equal opportunity to occupy or continue to occupy and enjoy a dwelling 
unit, including public and common use areas. For example:
    (1) It would be unlawful to refuse a person with a sight impairment 
with a service animal to live in a dwelling unit when there is otherwise 
a no-pet policy in the apartment complex.
    (2) It would be reasonable accommodation to grant a request by an 
applicant or tenant with a mobility impairment to be assigned a reserved 
parking space as near to that person's dwelling unit as possible, even 
though all other designated handicapped parking spaces are already 
reserved, having been assigned on a first-come, first served basis.
    (3) It would be reasonable accommodation to remove a gas cooking 
stove and install a microwave oven when such accommodations to a tenant 
or member would remove a direct threat to the project, the tenant and 
other tenants. Other examples are changing water faucets to push or 
electronic activated faucets and door knobs to door handles for persons 
with infirmed hands.
    b The Fair Housing Amendment Act requires owners to permit, at the 
expense of a person with handicaps, reasonable modifications of an 
existing unit, occupied or to be occupied by a person with handicaps, if 
the proposed modifications may be necessary to afford that person full 
enjoyment of the dwelling unit.
    (1) The borrower may, where it is reasonable to do so, condition 
permission for a modification on the applicant or tenant agreeing to 
restore the interior of the dwelling unit to the condition that existed 
before the modifications, reasonable wear and tear excepted. (Note: It 
should not, for example, be necessary to remove blocking previously 
installed to support bathtub handrails when restoring to ``original'' 
condition since the blocking does not affect future use.)
    (2) The borrower may not increase the customarily required security 
deposit. However, where it is necessary to ensure with reasonable 
certainty that funds will be available to pay for the restorations at 
the end of tenancy, the borrower may negotiate as part of such a 
restoration agreement a provision requiring that a tenant pay into an 
interest bearing escrow account, over a reasonable period, an amount of 
money not to exceed the cost of restoration. The interest in any such 
account shall accrue to the tenant's benefit.
    4 Other items the borrower should consider in determining 
eligibility of applicants for admission to the project.
    a Any criteria or documentation must be applied uniformly for all 
applicants for occupancy for the following items:
    (1) Verification of income and/or employment according to paragraph 
VII of this exhibit. (Mandatory in all cases.)
    (2) Credit reports to reflect the applicant's past record of meeting 
obligations. (Optional.)
    (3) Prior landlord references to determine if the tenant was 
responsive to meeting rent payment obligations, care, and maintenance of 
the unit. (Optional.)
    (4) The applicant's financial capability to meet other basic living 
expenses and the rental charge, taking into consideration any subsidy 
assistance that could be made available to the tenant. Where RA is not 
available, the borrower should inform any very-low or low-income 
household that would be required but unable to pay the approved rent, 
including utilities, that they may be eligible for a particular form of 
rent subsidy described in paragraph IV of this subpart. The borrower 
should indicate where information about other subsidies can be obtained. 
(Optional.)
    (5) Written verification of an unborn child by a doctor or other 
qualified third party. (When applicable.)
    b A borrower or manager should consider mitigating factors when 
tenants or members have had or presently have a period of hardship 
beyond their control, when they have had disputes with creditors, 
including landlords, or when they were having difficulty paying 
overburdened rent levels.
    5 Surviving or remaining members of eligible tenant household.
    a Surviving members of an elderly, disabled, and/or handicapped 
tenant's household may continue occupancy of the unit after the death of 
the original tenant, even though they may not meet the definition of an 
elderly, disabled or handicapped person stated in paragraph II of this 
exhibit, provided:
    (1) They are eligible occupants with respect to income and were 
either cotenant or

[[Page 237]]

member of the household and have legal capacity to sign and assume the 
lease,
    (2) They occupied the unit with the original tenant at the time that 
the original tenant died, and
    (3) A surviving nonelderly cotenant or comember shall not qualify 
for the elderly family adjustments to income.
    b Surviving members of a domestic farm laborer's household may 
continue to occupy when they meet the definition of a domestic farm 
laborer as defined in paragraph II of this exhibit.
    c Remaining household member(s) of a nonelderly, nondisabled and/or 
nonhandicapped household, who is included on the current tenant 
certification may continue to occupy the rental unit if they otherwise 
independently meet tenant eligibility requirements with respect to 
income and occupancy standard size and sign a succeeding tenant 
certification establishing their own tenancy.
    d When tenants no longer meet the requirements of paragraph VI D 5 
a, b, or c of this exhibit, the provisions for formerly eligible tenants 
in paragraph VI D 6 of this exhibit shall apply.
    6 Formerly eligible tenants. Unless authorized by paragraph VI D 2 j 
of this exhibit, formerly eligible tenants will be required to vacate 
their unit within 30 days (7 days for migrant farm labor tenants with 
week-to-week lease agreements) or the end of the term of their lease 
agreement, whichever is longer. If, however, there is not an eligible 
applicant on the waiting list available for occupancy, the formerly 
eligible tenant may remain until there is an eligible tenant on the 
waiting list available to occupy the unit; at which time, the 
requirements for notice to vacate stated in paragraph VI D 6 c of this 
exhibit will take effect. If vacating the unit in the time period 
described creates an undue hardship on the family, the Servicing 
Official may permit continued occupancy for a reasonable period of time. 
The following ``formerly eligible'' situations apply to this paragraph:
    a Tenants who no longer meet FmHA or its successor agency under 
Public Law 103-354 income eligibility requirements. (This includes 
tenants receiving RA or Section 8 assistance.)
    b Tenants in LH projects who no longer meet the farm labor 
occupation requirements, and who are neither retired nor disabled 
domestic farm laborers, are considered to be ``formerly eligible 
tenants'' as long as a need for housing for domestic farm laborers 
exists in the project's farm market area.
    c Tenants who no longer meet the occupancy policy for the project. 
These tenants must agree in writing to move to a unit of appropriate 
size in the project when one becomes available, or when an appropriate 
sized unit does not exist in the project, vacate the project at the 
termination of their lease. However, the tenant may remain as an 
ineligible tenant if the unit is not overcrowded and there are no other 
applicants on the waiting list for the size of unit presently occupied.
    7 Servicing official authority to permit an RRH or LH borrower to 
rent to ineligible tenants.
    a The Servicing Official may authorize the borrower in writing, upon 
receiving the borrower's written request with the necessary 
documentation, to rent vacant units to ineligible persons for temporary 
periods to protect the financial interest of the Government. Likewise, 
this provision may extend to a cooperative. This authority will be for 
the entire project for periods not to exceed one year. Within the period 
of the lease, the tenant may not be required to move for initially 
documented ineligibility. A copy of the authorization to rent to 
ineligibles will be forwarded to the State Office. The following 
determinations must be made by the authorizing FmHA or its successor 
agency under Public Law 103-354 official.
    (1) There are no eligible persons on a waiting list.
    (2) The borrower provided evidence that a diligent but unsuccessful 
effort to rent any vacant unit(s) to an eligible tenant household has 
been made. Such evidence may consist of advertisements in appropriate 
publications, posting notices in several public places, and other places 
where persons seeking rental housing would likely make contact; holding 
open houses, making appropriate contacts with public housing agencies 
and authorities (where they exist), State and local agencies and 
organizations, Chamber of Commerce, and real estate agencies.
    (3) The borrower will continue with aggressive efforts to locate 
eligible tenants and submit to the Servicing Office, along with Form 
FmHA or its successor agency under Public Law 103-354 1944-29, ``Project 
Worksheet for Interest Credit and Rental Assistance,'' a report of 
efforts made. The required followup should be posted in the Servicing 
Office on Form FmHA or its successor agency under Public Law 103-354 
1905-6, ``Management System Card-Multifamily Housing.''
    (4) To protect the security interest of the Government, the units 
may be rented for no more than a year after which the lease must convert 
to a monthly lease. The monthly lease must require that the unit be 
vacated when an eligible prospective tenant is available. The ineligible 
tenant will then be given 30 days to vacate.
    (5) Tenants residing in RRH units who are ineligible, because their 
adjusted annual income exceeds the maximum for the RRH project, will be 
charged the FmHA or its successor agency under Public Law 103-354 
approved note rate rental rate for the size of

[[Page 238]]

unit occupied in a Plan II RRH project. In projects operated under Plan 
I, ineligible tenants will be charged rental surcharge of 25 percent of 
the approved note rate rental rate.
    (6) Tenants permitted to occupy but who are ineligible for reasons 
other than income may benefit from RA and/or interest credit.
    (7) Tenants residing in off-farm LH units who are ineligible because 
their adjusted annual income exceeds the maximum for the area will be 
charged the lesser of the LH project's note rate rent or the prevailing 
market rent rate for the project as determined by subpart D of part 1944 
of this chapter. For on-farm tenants, rent determination may be subject 
to local discretion with limitations as set out in subpart D of part 
1944 of this chapter. Excess rent shall be remitted to the Agency for 
credit to the Rural Housing Insurance Fund.
    b Examples of situations where the Servicing Official may authorize 
a borrower to rent units to ineligible persons to reduce chronic vacancy 
are:
    (1) In housing designated as ``family'' housing, permitting persons 
or households to occupy who are not eligible because they have an above 
normal income.
    (2) In housing designated as ``elderly'' housing, permitting persons 
or households to occupy that meet the definitional requirements of 
qualifying as elderly, but who otherwise have an above moderate income. 
This provision will not permit nonelderly persons or households to 
occupy housing for the elderly.
    c When the Servicing Official determines that a borrower may rent to 
an ineligible tenant, the written authorization must contain the 
appropriate clauses which must be inserted into the ineligible tenant's 
lease. At a minimum it should include:
    (1) The reason for ineligibility.
    (2) The term of ineligible occupancy.
    (3) Any conditions under which the tenant will be required to vacate 
the unit including moving to an appropriate size unit when warranted to 
comply with the established occupancy standards.
    (4) The length of notice the tenant will be given to vacate.
    E Applicant inquiries and waiting lists.
    1 When a prospective tenant or member inquires (by telephone, 
letter, or visit) concerning the availability of a rental or cooperative 
unit, the borrower or rental agent will advise the prospective applicant 
of their right to file an application.
    2 When a prospective tenant or member files a completed application 
for occupancy and is determined eligible, the borrower or rental agent 
will place the prospect's name chronologically by date and time on the 
appropriate written waiting list. Exhibit B-14 of this subpart contains 
a sample waiting list. An application is a written document(s) 
prescribed by the management providing sufficient information for the 
rental agent to complete the steps necessary to determine eligibility.
    a Eligibility shall be governed by paragraph VI F of this exhibit.
    b The actual determination of eligibility will be conducted 
according to the application process described in paragraph VI F of this 
exhibit.
    c Priority on the waiting list shall be determined according to 
paragraph VI E 3 of this exhibit. Eligibility for cooperative membership 
will be determined in accordance with subpart E to part 1944 of this 
chapter.
    3 Separate waiting lists by categories and/or a master waiting list 
with income levels identified (very low-, low- and moderate-income), and 
categories or priorities indicated will be maintained for rural rental, 
cooperative, and year-round occupancy farm labor housing. Each list must 
be maintained in chronological order. When there are separate lists, 
they must be cross-referenced for prospective tenants who fit more than 
one category or priority. Separate lists may be maintained for:
    a Income levels (very low-, low-, moderate-income, or ineligible).
    b Various size units.
    c Units for elderly, disabled, or handicapped persons, families, or 
any other combination as planned for the project according to the 
borrower's loan agreement or resolution and management plan.
    d Persons who require the special design features of the handicapped 
accessible units(s) in the project such as persons confined to a 
wheelchair or requiring other auxiliary apparatus for mobility and/or 
life support. Persons on this list have priority for these units.
    e Holders of Letters of Priority Entitlement issued by FmHA or its 
successor agency under Public Law 103-354 according to subpart E of part 
1965 of this chapter will be given top of the waiting list priority 
within an income group for the category of unit size for which the 
applicant qualifies. This same priority shall also extend to persons 
displaced due to housing rendered uninhabitable or actually seized by 
legal action (for other than illegal activities).
    f In congregate housing projects, priority can be given to tenants 
who qualify for the services provided by the congregate facility insofar 
as there is available capacity in the facility to provide the services.
    g In LH projects, lists should be maintained in accordance with the 
priorities of occupancy established by Sec.  1944.154 of subpart D of 
part 1944 of this chapter.
    h In only those projects with project based Section 8 units, 
priority for such units will go to applicants who, at their time of 
housing need, are involuntarily displaced, or

[[Page 239]]

living in substandard housing, or paying more than 50 percent of income 
for rent.
    i Tenant applicants that qualify the borrower for tax credit.
    4 For seasonal farm LH a waiting list should be chronologically 
compiled by date and time received as in paragraphs VI E 2 and VI E 3 of 
this exhibit. These lists should be maintained for the season in which 
the project will be operating. Prospective tenants should be advised 
that the waiting list will terminate on the closing date of the project 
in any given season. Tenant selection shall be governed according to 
paragraph VI H 6 of this exhibit.
    a Seasonal LH management plans should identify a date when 
applications will be accepted for a new operating season and a waiting 
list compiled.
    b A process should be specified in the plan for advising prospective 
tenants of the application process and the dates of project operation.
    5 A waiting list must show the racial identity of the prospective 
tenant. Rental housing managers may determine how the identification is 
to be made according to the guidance found at exhibit B-14 of this 
subpart, which may include the use of a code system.
    6 When prospective tenants are first assigned to the waiting list, 
they will be notified of the category(s) to be assigned to their 
application. Prospective tenants may inquire to determine the place of 
their application on the waiting list. However, to protect the privacy 
of all prospective tenants, the waiting list should not be shown to any 
prospective tenants.
    7 Borrowers may establish a procedure for purging the waiting 
list(s) periodically of prospective tenants who are no longer interested 
in occupancy. The borrower must inform each prospective tenant of this 
procedure and any actions they must take to maintain their priority 
position on the waiting list. When a name is removed from the waiting 
list by the borrower, the prospective tenant must be informed in writing 
at their last known address. The letter must include appeal rights under 
subpart L of part 1944 of this chapter.
    8 Expired waiting lists must be kept on file by the borrower or 
management agent until a compliance review has been conducted by FmHA or 
its successor agency under Public Law 103-354 in accordance with subpart 
E of part 1901 of this chapter.
    F Applications, eligibility determination and notification of 
eligibility or rejection.
    1 Application status for determining eligibility. All persons 
desiring to apply for occupancy, whether as the initial applicant 
household or as a person(s) later joining an existing tenant household, 
will be provided the opportunity to submit a complete application. The 
borrower or rental agent will provide prospective tenants or members 
with a written list of all information required for a complete 
application and offer assistance in completing the application if 
needed.
    a After the potential tenant or member has submitted all required 
forms and information but additional information is required, the 
borrower or rental agent must notify the applicant within 10 days of the 
items needed to complete a review of eligibility. The application file 
will be documented on the action taken.
    b When the application is complete, and occupancy by the applicant 
is expected within 90 days of completing the application, eligibility 
will be determined, including verification of applicant information 
performed according to paragraph VII of this exhibit; otherwise, 
verification of applicant information will be initially satisfied upon 
sufficient review of the information to determine whether the applicant 
is clearly eligible or not eligible.
    c Applicants determined eligible will be added to the waiting list 
according to paragraph VI E 2 of this exhibit, even when an operational 
project has few or no vacancies, and there are sufficient active 
applications from households determined eligible to fill expected 
vacancies.
    d Application fees are discouraged, but when used, any fee charged 
to a prospective tenant shall be limited to the cost of actual services 
incurred for obtaining necessary information associated with completing 
a tenant certification.
    2 Fair housing restrictions and provisions.
    a It shall be unlawful for a person to make an inquiry to determine 
whether an applicant for a housing unit, or anyone associated with that 
applicant, has a handicap or disability or to make inquiry as to the 
nature or severity of a handicap or disability of such a person. 
However,
    b The following inquiries are not prohibited, provided these 
inquiries are made of all applicants, whether or not they have handicaps 
or disabilities.
    (1) Inquiry into an applicant's ability to meet the requirements of 
tenancy (i.e., eligibility, history of meeting financial obligations) 
and without being a direct threat to the health and safety of other 
individuals or whose tenancy would result in substantial physical damage 
to the property of others.
    (2) Inquiry to determine whether an applicant is qualified for a 
housing unit or adjustment to income available only to persons with 
handicaps or disabilities or to a persons with a particular type of 
handicap or disability.
    (3) Inquiry to determine whether an applicant for a housing unit is 
qualified for a priority available to persons with handicaps or 
disabilities or to persons with a particular type of handicap.

[[Page 240]]

    (4) Inquiring whether an applicant for a dwelling is a current 
illegal user of a controlled substance or has a previous conviction of 
the same.
    (5) Inquiring whether an applicant has been convicted of the illegal 
manufacture or distribution of a controlled substance.
    (6) Inquiring whether an applicant answering positively to F 2 b (4) 
or (5) of this paragraph has successfully completed a controlled 
substance abuse recovery program or is presently enrolled in such a 
program.
    3 Application requirements. At a minimum to be considered complete, 
applications must include for each prospective tenant household 
sufficient information, such as the following, to complete a tenant 
certification form:
    a Name and present address.
    b Household income information, as defined under annual income, 
adjusted annual income, and net family assets in paragraph II of this 
exhibit.
    c Age and number of household members.
    d Indication whether applicant requests either a handicap/disability 
adjustment to income or a special handicapped accessible unit or both.
    e Applicant's certification that the unit applied for will be the 
applicant household's permanent residence and it does/will not maintain 
a separate subsidized rental unit in a different location.
    f Signature and date section.
    g Race, national origin and sex designation. This designation shall 
be placed as the last section of the application form beneath the 
signature and date section.
    (1) The borrower or management agent will request that each 
prospective tenant or member provide this information on a voluntary 
basis to enable monitoring or compliance with Federal laws prohibiting 
discrimination. When the applicant does not provide this information, 
the rental agent or board will complete this item based on personal 
observation or surname.
    (2) The following disclosure notice shall appear on the tenant 
application form or on an amendment to the application:
    ``The information regarding race, national origin, and sex 
designation solicited on this application is requested in order to 
assure the Federal Government, acting through the Farmers Home 
Administration or its successor agency under Public Law 103-354, that 
Federal Laws prohibiting discrimination against tenant applicants on the 
basis of race, color, national origin, religion, sex, familial status, 
age, and handicap are complied with. You are not required to furnish 
this information, but are encouraged to do so. This information will not 
be used in evaluating your application or to discriminate against you in 
any way. However, if you choose not to furnish it, the owner is required 
to note the race/national origin and sex of individual applicants on the 
basis of visual observation or surname.''
    h The application form shall contain the fair housing logotype or 
slogan and indication of handicap accessibility on the first page of the 
form.
    i Retired or disabled domestic farm labor applicants must meet the 
definition requirements of Sec.  1944.153 of subpart D of part 1944 of 
this chapter.
    4 Notification to applicant. The applicant who has submitted a 
completed application will be notified in writing that he or she has 
been selected for immediate occupancy, placed on a waiting list, or 
rejected.
    5 Applicants determined ineligible. After due consideration of 
mitigating circumstances, applicants determined ineligible will be 
notified in writing of the specific reasons for rejection. The letter 
will include the following statement: ``The Fair Housing Act prohibits 
discrimination in the sale, rental or financing of housing on the basis 
of race, color, religion, sex, handicap, familial status, or national 
origin. Federal law also prohibits discrimination on the basis of age. 
Complaints of discrimination may be forwarded to the Administrator, FmHA 
or its successor agency under Public Law 103-354, USDA Washington, DC 
20250.'' This statement can be placed on all materials and 
correspondence done by the borrower, owner, or management company.
    a The rejection letter must also outline the applicant's rights to 
appeal the rejection and be sent or hand-delivered according to subpart 
L of part 1944 of this chapter except for those clearly not eligible for 
occupancy according to FmHA or its successor agency under Public Law 
103-354 regulations.
    b When the rejection is based on information from a credit bureau, 
the source of the credit bureau report must be revealed to the applicant 
in accordance with the Fair Credit Reporting Act.
    c Any applicant household may be rejected due to:
    (1) A history of unjustified and/or chronic nonpayment of rent and/
or financial obligations.
    (2) A history of living or housekeeping habits that would pose a 
direct threat to the health and safety of other individuals or whose 
tenancy would result in substantial physical damage to the property of 
others.
    (3) A history of disturbance of neighbors.
    (4) A history of violations of the terms of previous rental 
agreements, especially those resulting in eviction from housing or 
termination from residential programs.
    d Rejection of applicants on a arbitrary basis is prohibited. 
Examples of such arbitrary rejections includes considering the following 
factors in determining a tenant's eligibility:
    (1) Race, color, religion, sex, age, familial status, national 
origin, handicap (except in

[[Page 241]]

those projects or portions of projects designated for elderly, disabled 
and/or handicapped, where occupancy by nonelderly, nondisabled or 
nonhandicapped can be prohibited).
    (2) Receipt of income from public assistance.
    (3) Families with children of uncertain parentage.
    (4) Participation in tenant organizations.
    (5) Tenants or tenant family members with AIDS.
    e In the case of LH projects, no organization borrower, other than 
an association of farmers of family farm corporation or partnership, 
will block lease to, or otherwise require that an occupant work on any 
particular farm or for any particular owner or interest as a condition 
of occupancy of the housing.
    f Rejected applications must be kept on file by the borrower or 
management agent for a period of 3 years or until a compliance review 
has been conducted by FmHA or its successor agency under Public Law 103-
354 in accordance with subpart E of part 1901 of this chapter.
    G Tax credit compliance. The Tax Reform Act of 1986 permits certain 
RRH borrowers to receive tax credits for low-income housing projects if 
20 percent or more of the units are occupied by very low-income tenants 
whose annual gross income is 50 percent or less of the area median gross 
income; or 40 percent or more of the units are occupied by tenants whose 
annual gross income is 60 percent or less of the area median gross 
income.
    1 Eligible borrowers with projects qualified to receive tax credits 
will follow the tenant selection criteria of paragraph VI H of this 
exhibit except that tenant selection may be postponed until applicants 
for occupancy are available whose occupancy will allow borrowers to meet 
their tax credit requirements.
    2 Borrowers using IRS tax credits may neither terminate a tenant's 
occupancy nor refuse to renew a tenant's lease except for material 
noncompliance or other good cause as described in paragraph XIV of this 
exhibit. Tenants whose income increases after initial occupancy and 
exceeds IRS tax credit thresholds, but otherwise still meet FmHA or its 
successor agency under Public Law 103-354 income eligibility thresholds, 
remain qualified to occupy with respect to income eligibility.
    H Tenant and member selection.
    1 An eligible applicant will be selected from a waiting lists(s) 
identifying the category on basis of the applicant's unit size needed, 
income level (very low-, low-, moderate-income, or ineligible) or from a 
priority waiting list, as described in paragraph VI E of this exhibit, 
when the available size unit meets the applicant's need. The eligible 
applicant will further be selected on a first-come, first-served basis 
from the selected category or priority waiting list in the following 
order:
    a Very low-income
    b Low-income, up to 60 percent of median income, (in ``tax credit'' 
projects)
    c Low-income
    d Moderate-income
    e Ineligible
    2 When RA is available:
    a Very low-income applicants eligible for RA have a priority over 
all other applicants on each type of waiting list maintained by the 
borrower in accordance with paragraph XI of exhibit E to this subpart.
    b Low-income applicants may be selected provided no very low-income 
applicants remain on the waiting list.
    c Moderate-income applicants may not be selected for occupancy when 
the number of unassigned RA units equals or exceeds the number of vacant 
units. (Borrowers unable to use RA may consider requesting a transfer of 
RA authority according to paragraph XV of exhibit E of this subpart).
    3 In only those projects when project based section 8 is available, 
the following applicants, as described in HUD handbook 4350.3 (available 
at any HUD regional or area office), will have priority over other 
applicants if at the time of their housing needs, they are:
    a involuntarily displaced, or
    b living in substandard housing, or
    c paying more than 50 percent of income for rent.
    4 Selections are to be made from the waiting list or category 
maintained for the particular unit size and/or unit type in which a 
vacancy exists. If the applicant cannot accept the unit at that time, 
the reason for not accepting the living unit will be documented in the 
project records and confirmed with the applicant in writing. The 
applicant's name will then be removed from the waiting list following 
the notice procedure at paragraph VI E 7 of this exhibit unless the 
rental agent determines that hardship exists for reasons such as 
documented health problems or project rent exceeds 30 percent of 
adjusted monthly income without RA in which case the applicant's name 
will remain on the list in chronological order. An applicant whose name 
has been removed from the waiting list may reapply.
    5 When there are no applicant names on the waiting list for the size 
and/or type of vacant living unit, a name may be selected from the 
waiting list of another size and/or type of living unit according to the 
date order of the application on the master waiting list. The selected 
tenant will be subject to the provisions for ineligible tenants found in 
paragraph VI D 7 of this exhibit and the provisions of paragraph VI D 2 
of this exhibit.

[[Page 242]]

    6 In LH projects, paragraphs VI H 1 and 2 of this exhibit do not 
apply. Eligible LH applicants will be selected according to paragraphs 
VI H 4 and 5 of this exhibit and the priority stated in Sec.  1944.154 
(a) of subpart D of part 1944 of this chapter irrespective of the 
availability of RA. However, when FmHA or its successor agency under 
Public Law 103-354 concurs with the LH borrower's determination that 
there is a diminished need for housing for domestic farm laborers in 
accordance with Sec.  1944.154 (b) of subpart D of part 1944 of this 
chapter, all the provisions of this paragraph are applicable to initial 
occupancy by applicants eligible only under the RRH program.
    I Tenant or member record file. A separate file must be maintained 
for each tenant or member. Tenants must be allowed reasonable access to 
their own file for review during regular project office hours. This file 
will include items such as application, tenant certification with 
attached income and adjustment(s), verification forms and calculations, 
lease or occupancy agreement and attachments, inspection reports for 
moving in and moving out, correspondence and notices to the tenant or 
member, and any other necessary information. The income verification, 
tenant and member eligibility certification and recertification 
information must be retained for at least 3 years while the tenant or 
member is living in the unit and for 3 years after the tenant or member 
has moved out.
    J Marketing incentives: Marketing incentives, as described in the 
management plan, may be used anytime as a means of maintaining occupancy 
levels and revenue needed to carry out the objectives of the housing and 
the projections of the annual project budget.
    1 When a need is documented, marketing incentives will be included 
in annual project operations as reflected in the project budget, Form 
FmHA or its successor agency under Public Law 103-354 1930-7. The 
incentives will be governed by the guidance at paragraph III B 3 c of 
exhibit F of subpart B of part 1965 of this chapter (available at any 
FmHA or its successor agency under Public Law 103-354 office).
    2 FmHA or its successor agency under Public Law 103-354 approval of 
marketing incentives.
    a When marketing incentives will enhance program objectives during a 
``soft'' market and FmHA or its successor agency under Public Law 103-
354 is otherwise not aware of any loan servicing difficulties of major 
concern, cost effective incentives may be approved by the FmHA or its 
successor agency under Public Law 103-354 Servicing Official as part of 
normal project budget approval.
    b When major loan servicing difficulties exist, cost effective 
marketing incentives may be approved as part of a servicing plan 
according to the provisions of exhibit F of subpart B of part 1965 of 
this chapter (available in any FmHA or its successor agency under Public 
Law 103-354 office).

  VII Certification and Verification of Tenant or Member Income and/or 
             Employment Information and Corrective Actions.

    The borrower/management agent shall obtain tenant or member 
authorization to verify income and/or employment information needed to 
establish eligibility before pursuing verifications.The Borrower/
management agent shall seek verification of income and/or employment 
information disclosed from third party sources without further 
involvement of the members of the tenant household. This borrower/
management agent shall seek to verify employment for all FMH program 
recipients. The borrower/management agent shall also seek to verify 
income for all MFH program recipients, except those residents of LH farm 
borrowers who are living in housing provided on a nonrental basis. The 
applicable employment and/or income verifications must normally be 
verified by the borrower or management agent before the person is 
determined eligible. Exceptions may be made for those unusual cases 
described herein. Information for the determination of eligibility is 
valid for not more than 90 days before the effective date of the tenant 
certification. Should verifications reveal discrepancies from the 
information provided, the borrower or management agent will seek prompt 
resolution using the principles set out in this subpart.
    A Verification of income from employment. Verification of income 
from employment, authorized by the tenant or member/applicant, must be 
obtained from the employer in writing and filed in the ``Tenant or 
Member Record File.'' Form FmHA or its successor agency under Public Law 
103-354 1910-5, ``Request for Verification of Employment,'' or 
comparable form, will be used for this purpose. (A reproducible copy of 
Form FmHA or its successor agency under Public Law 103-354 1910-5 is 
available in any FmHA or its successor agency under Public Law 103-354 
office.)
    B Verification of income from other sources. Any income from other 
than employment (e.g., social security, Veterans Administration, public 
assistance) must be verified in writing by the income source. 
Verification of income must be documented and filed in the ``Tenant or 
Member Record File.'' When it is not immediately possible to obtain the 
written verification from the income source, the income may be 
temporarily verified by actually examining the income checks, check 
stubs, or other reliable data the person possesses which indicates gross 
income.
    C Verification of income and/or employment for LH tenants.

[[Page 243]]

    1 Verification of income from all sources. Income verification is 
required for domestic farm laborers, including migrant farm-workers, 
except for those farmworkers where their housing is provided rent free 
on a farm as part of their employment compensation for farm labor 
performed on the farm where they live and work. All domestic 
farmworkers, where income verification is required, must have a 
substantial portion of income from farm labor as defined in Sec.  
1944.153 of subpart D of part 1944 of this chapter. When the tenants do 
not have easily verifiable income, the borrower may forecast income 
expected to be received by the tenant during occupancy for determining 
eligibility and subsidy assistance.
    2 Farm labor employment verification. Farm labor employment 
verification is required for all domestic farm laborers, whether they 
are year-round, seasonal, or migrant farmworkers, or farmworkers living 
in rent-free housing on the farm where they work. Such employment 
verification is in addition to the income verification requirements 
described in paragraph VII C 1 of this exhibit.
    3 Third party verification.
    a Third party verification of income and employment, as applicable, 
is required whenever it is possible or available.
    b When third party verification of income and employment is not 
possible or available, for reasons such as refusal or lack of third 
party availability or cooperation, the borrower may ``self-certify'' the 
farmworker applicant using any available documents or records the 
applicant may have or information the applicant can provide. In the 
absence of available income and employment documents, records, or 
information, the borrower may forecast income as described in paragraph 
VIIC1 of this exhibit.
    4 Tenant record file. Verifications of any type must be documented 
and filed in the ``Tenant Record File'' or in the borrower loan docket, 
as appropriate.
    D Sample of tenant or member income and/or employment verification.
    1 The Servicing Office staff is required to make a sample of tenant 
or member income verifications and adjustments to income; in the case of 
LH tenants, employment verifications for use in evaluating the adequacy 
of such verifications. This will normally be performed during a 
scheduled supervisory visit.
    2 The sample will follow the process set out in exhibit F-1 of this 
subpart. The sample can be derived from information on the certification 
forms that will be submitted to the Servicing Office in accordance with 
paragraph VII F of this exhibit and may include verification of 
information from third party sources. At least six tenant households 
will be sampled (or 100 percent of all tenant households for projects 
having six or fewer units) during any sampling.
    3 The sample should be representative of very low-, low-, and 
moderate-income persons in the project, including those receiving 
subsidy assistance, those paying in excess of the level cited in 
paragraph IVA2c (1), (2), or (3) of this exhibit for the costs of rent 
or occupancy charge and utilities, and those paying the note rate rent.
    4 The Servicing Office staff will conduct the sample (and document 
the selection method) at any time he/she may be knowledgeable of 
discrepancies in income and/or employment verifications.
    5 If the sample discloses discrepancies of amounts in excess of $40 
monthly or $480 annually, the Servicing Officer will be required to 
notify the borrower/management agent to resolve the issues. Should 
resolution not be satisfactorily approved, the Servicing Officer will be 
required to investigate further and report to the State Director along 
with a recommendation for further action. Such further actions may 
include those authorized under FmHA or its successor agency under Public 
Law 103-354 Instructions 2012-B or 1940-M (available in any FmHA or its 
successor agency under Public Law 103-354 office) or subpart N of part 
1951 of this chapter.
    E Use of HUD certification form for Section 8 or Section 8 Rental 
Certificate or Rental Voucher Recipients. HUD Form 50059, or another HUD 
form approved by HUD for this purpose, may be used in lieu of Form FmHA 
or its successor agency under Public Law 103-354 1944-8 for the tenants 
receiving project based Section 8 or tenant based Rental Certificate or 
Rental Voucher assistance. However, the tenant's income cannot exceed 
FmHA or its successor agency under Public Law 103-354 limits for the 
type of housing project involved if it has been calculated according to 
the formula contained in Form FmHA or its successor agency under Public 
Law 103-354 1944-8.
    F Certifications and corrective actions.
    1 To be current, the tenant or member certification Form FmHA or its 
successor agency under Public Law 103-354 1944-8 (or for section 8, the 
appropriate HUD form) must be submitted in such manner that it is 
received in the FmHA or its successor agency under Public Law 103-354 
Servicing Office by the close of business (COB) of the due date as 
follows:
    a New tenant or member move-in certification due date.
    (1) Move in on the 2nd through the 23rd. The certification is due 
for receipt in the Servicing Office on or before the first of the next 
month for all new tenants or members permitted to move in for occupancy 
from the 2nd through the 23rd day of a month for overage charges to be 
avoided (Example: A change is reported on July 2nd, the effective date 
is August 1, and the Servicing Office

[[Page 244]]

must receive the certification by COB on August 1). If the due date 
falls on a non-working day, overage will not be charged if the tenant 
certification is received in the Servicing Office on the next working 
day.
    (2) Move in from 24th through the 1st of next month. The 
certification is due for receipt in the Servicing Office on or before 
the tenth of the month in which it is effective in order to avoid 
overage charges (Example 1: Move-in is June 24th, effective 
date is July 1st and the Servicing Office must receive the certification 
by COB July 10th. Example 2: Move-in is July 1st, effective 
date is July 1st and the Servicing Office must receive by COB July 
10th). If the due date falls on a nonworking day, overage will not be 
charged if the tenant certification is received in the Servicing Office 
on the next working day.
    b Certification due dates for renewals. Tenant certifications 
represent the contractual basis for delivery of benefits to tenants. 
Therefore, any certification being renewed must be received by Servicing 
Officials on or before the effective date in order to avoid overage 
charges. The effective date is the first day of the month following 
expiration of the current certification. Certifications expire on the 
last day of the month, 12 months from the effective date (Example: The 
last certification was effective on July 1 and its ending period date 
was 12 months later on June 30, therefore, the renewed certification 
effective date is July 1). If the due date falls on a nonworking day, 
overage will not be charged if the tenant certification is received in 
the Servicing Office on the next working day.
    c Tenant reported changes and corrective actions. Changes to 
unexpired tenant certifications represent adjustments to the existing 
contractual basis for delivery of benefits to tenants. Therefore, 
overage may not be invoked as a penalty for any late reporting, since 
overage is merely an offset to arrive at the proper subsidy benefits a 
tenant is entitled to receive. Tenants are responsible for reporting any 
changes in household gross income, adjustments to household income or 
changes in household size (as set out in paragraph VIIF3a of this 
exhibit) no later than 30 days after the change occurred. Landlords must 
recertify tenant households in accordance with the provisions of 
paragraph VIIF3b of this exhibit. When recertification is required, 
landlords must promptly seek to verify employment and/or income with 
third-party sources in accordance with the provisions of paragraphs VII 
A, B, C, and F 10 of this exhibit. Once verification is obtained from 
third-party sources, landlords are expected to forward such 
certifications to the Servicing Office in accordance with the timeframes 
set out herein.
    (1) Reporting 2nd through 23rd. If the third-party verifications are 
received from the 2nd through the 23rd day of the month, the 
recertification is due for receipt in the Servicing Office on or before 
the first day of the next month. If the due date falls on a nonworking 
day, it will be considered on time if received in the Servicing Office 
on the next working day.
    (2) Reporting 24th through the 1st of the next month. If the third-
party verifications are received from the 24th through the 1st of the 
next month, the recertification is due for receipt in the Servicing 
Office on or before the COB on the tenth of the month. If the due date 
falls on a nonworking day, it will be considered on time if received in 
the Servicing Office on the next working day.
    (3) Effective date of changed net tenant contribution. The effective 
date of a tenant's changed net tenant contribution will be the first day 
of the month following third-party verification of changes or the first 
day of the following month (generally 30 days later) permitted according 
to the tenant notice requirements of State or local law.
    (4) Corrective actions on tenant problems.
    (i) Should the tenant be found to not comply with the 30-day 
reporting requirements, the landlord may initiate actions as set out in 
the lease and the Agency may initiate action to ensure appropriate 
corrective action is taken.
    (ii) If the landlord chooses to pursue termination, the landlord 
need not further pursue recovery of any improper benefits from the 
tenant but shall instead forward a report on the circumstances to the 
Agency for its consideration on whether to initiate an appropriate 
servicing action.
    (iii) If the landlord chooses to permit the continued occupancy by 
the tenant the landlord must take steps to pursue corrective actions, 
taking into consideration any rights the tenant may have under the 
grievance procedures in subpart L of part 1944 of this chapter.
    (iv) In processing corrective actions where existing certifications 
have not expired, overage may not be charged for failure to report 
changes in a timely manner and the note rate rent will not be charged. 
Processing corrective actions will use the corrected accurate 
information to establish the proper rent levels, subsidies, and any 
overage charges using the same principles as would apply had the change 
been promptly processed.
    (v) Upon determining any resulting differences, the landlord may 
initiate actions to seek recovery from the tenant of any improper 
benefits derived from inappropriate rent levels or inappropriate 
subsidies. Such recovery efforts will normally not extend over a 3-month 
period, but may not ever extend over a 12-month period.
    (vi) The Servicing Office may be consulted if guidance is needed on 
processing corrective actions when payments are affected.

[[Page 245]]

    (vii) When appropriate, the Agency may pursue servicing initiatives 
which may include seeking corrective action by the landlord or using the 
authorities set out in subpart N of part 1951 of this chapter or FmHA or 
its successor agency under Public Law 103-354 Instruction 2012-B 
(available in any FmHA or its successor agency under Public Law 103-354 
office).
    (5) Corrective actions on landlord problems. Should the landlord be 
found to not comply with the above reporting dates, the Agency may 
initiate action to ensure that the proper rent levels were assessed, the 
proper payments were remitted to the Government, and that any 
remittances involving any improperly paid Government subsidies are 
recovered by the Government. Such initiations may involve seeking 
corrected payment remittances, or the use of authorities set out in 
subpart N of part 1951 of this chapter as cited in paragraph VII F 1 c 
(4) of this exhibit.
    d Modifications.
    (1) Modifications will likely result from changes to project rents 
or utility allowances or when the tenant household moves to a different 
unit within the project. In such cases the landlord may revise the 
unexpired tenant certification form by notating the changes in rents or 
utility allowances and recomputing the net tenant contribution when 
necessary.
    (2) Unexpired tenant certification forms showing modification(s) 
which do not result from changes in income or adjustments to income or 
change of household size or composition need not be submitted to the 
Agency. Such modifications do not affect the certification effective 
dates or expiration dates of the certification form being modified, 
therefore, the certification expiration date will remain unchanged (and 
overage is not applicable). (Example: Certification with a July, 19xx 
effective date is in effect for a 12-month period, and any mid-term 
modification will not alter the July 1, 19xx effective date).
    (3) Form FmHA or its successor agency under Public Law 103-354 1951-
29, ``Multiple Family Housing--Changes To Tenant Status,'' or similar 
reporting format, will be prepared and submitted to report the 
modifications, impact on rental assistance, move-outs, 60-day absences, 
and expired tenant certifications.
    2 When the Servicing Office does not have a certification in the 
office as required in F 1 of this paragraph, the tenant or member is 
ineligible for RA and interest credit for that month and overage for the 
month will be charged to the project account. This does not apply to 
modification of a certification as described in paragraph VII F 1 d of 
this exhibit or in a situation as described at paragraph XIV A 5 b 
(2)(vi) of this exhibit.
    a If a formal eviction process has started, the provisions of 
paragraph VII F 6 d of this exhibit will be followed.
    b If the late certification was due to noncooperation by the tenant 
or member (noncooperation does not include situations beyond the control 
of the tenant member, such as delays by third-party sources in 
completing income or employment verifications), overage must be paid and 
is a project expense; however, the borrower or management agent may 
attempt to recover the charge by billing the person note rate rent 
(overage) for the month. If the error was due to the borrower's or 
management's action, the cost of overage will be a project expense and 
it will not be charged to the person.
    c Overage charges due to negligent management may not be considered 
cause for a rent increase. The costs should be deducted from return on 
owner investment or from management agent fees and may be cause for 
requiring different management.
    3 Reporting changes.
    a Tenant reporting. Tenants must report changes in household income 
(gross income) or adjustments to household income. In addition, any 
change in household size must be promptly reported to the landlord. 
Changes to household income may result from changes in hours worked, 
salary rates, social security, pensions, public assistance payments, the 
sale of assets, interest income, the amount of net family assets 
exceeding $5,000, imputed income, or other sources of income. Changes in 
adjustments to income may result from changes in household members other 
than the tenant or cotenant (e.g., changes in the number of minors, 
disabled, handicapped or full-time students 18 or older), changes in the 
tenant or cotenant (e.g., changes in the elderly, disabled, or 
handicapped status), changes in medical care expenses, and changes in 
child care expenses.
    b Landlord reporting. Landlords must recertify tenant households 
whenever permanent changes to gross household income or permanent 
adjustments to household income result in an increase of $40 or more per 
month or $480 or more per year. Landlords must recertify tenant 
households whenever changes to permanent household income or permanent 
adjustments to household income result in a decrease of $20 or more per 
month or $240 or more per year. If the permanent gross income of a 
tenant household does not exceed $20 a month or $240 annually, and the 
tenant requests certification, the borrower will process the 
recertification. In addition, landlords must recertify changes in 
household size or composition.
    4 The current certification form will be revised by correcting 
entries and being initialed by the tenant or member and the owner's 
representative when there are project changes such as:

[[Page 246]]

    a Changed rental or occupancy rates and/or utility allowances.
    b Tenant or member relocation within the project.
    c Addition or removal of household RA.
    5 Form FmHA or its successor agency under Public Law 103-354 1944-8 
must be processed as follows:
    a Borrowers or their representatives may sign Form FmHA or its 
successor agency under Public Law 103-354 1944-8 up to 60 days prior to 
the effective date.
    b Borrowers or their representatives should submit Form FmHA or its 
successor agency under Public Law 103-354 1944-8 to the FmHA or its 
successor agency under Public Law 103-354 Servicing Office during the 30 
day period preceding the effective date. Borrowers should not delay 
submitting certifications until Form FmHA or its successor agency under 
Public Law 103-354 1944-29 is submitted. Borrowers should avoid 
submitting certifications just before or on the first day of a month to 
reduce impact on first of month account servicing at the Servicing 
Office, and to minimize late delivery and the charge of overage.
    c The FmHA or its successor agency under Public Law 103-354 
Servicing Office date stamps each Form FmHA or its successor agency 
under Public Law 103-354 1944-8 when received, reviews each form 
submitted and determines that the information is complete, and correctly 
computed based on the information provided on the form (see Guide Letter 
1930-1 for use in noting exceptions).
    d The FmHA or its successor agency under Public Law 103-354 approved 
tenant certifications and recertifications have an effective period of 
12 months. The effective period begins on the effective date which is 
always the first day of a month.
    6 Each tenant or member must be recertified within 12 months of the 
previous certification. Tenants receiving Section 8 assistance will be 
certified according to HUD regulations.
    a It is the tenant's or member's responsibility to provide income 
information and sign the certification form as a condition for continued 
occupancy. Failure to do so will cause a charge for overage/surcharge 
during those months such information was not provided, and it may result 
in termination of occupancy.
    b The borrower's responsibility is to:
    (1) Notify the tenant or member that a current certification and 
income verification is required before the due date and explain the 
procedure necessary to accomplish recertification. Normally, this 
initial written notice will be sent 75 to 90 days prior to the 
expiration date of the current certification; then
    (2) Obtain verification of income from tenant or member records and/
or directly from tenant or member employers and process the appropriate 
tenant recertification; and
    (3) Submit the signed recertification to be received by the 
Servicing Office by the due date stipulated in paragraph VII F 1.
    (c) The borrower must provide a second written notice to the tenant 
or member 30 days prior to the due date if they have not responded. The 
second notice must advise the tenant or member that without a current 
certification, the person will be required to pay note rate rent or 
occupancy charge (i.e., the person pays overage) and that termination 
proceedings may be started as of the due date since an annual 
recertification is required for continued occupancy. [Note: In any 
event, the borrower is required to pay the overage amount to FmHA or its 
successor agency under Public Law 103-354 according to Sec.  
1951.506(a)(5)(iii) of subpart K to part 1951 of this chapter.] If the 
tenant or member has RA, the person must be advised that without a 
current certification, the person's RA will be canceled and possibly may 
not be immediately available for reinstatement should a proper 
certification be provided at a later date.
    d When a notice of termination has been served on a tenant or member 
for failure to recertify, the borrower must provide a copy of the 
termination notice to the Servicing Office prepared according to 
paragraph XIVB of this exhibit. If the Servicing Official does not 
receive a new certification on such person(s), the Servicing Official 
will annotate the project master list with an E beside the ``Expiration 
Date of Tenant Certification'' on Form FmHA or its successor agency 
under Public Law 103-354 1944-29 for the appropriate tenant(s) or 
member(s). The Servicing Official will continue to authorize interest 
credit and waiver of overages while the termination is being actively 
pursued until resolution of the termination. The payment of RA will be 
suspended during the termination process. Upon conclusion of the 
termination process the RA will either be reinstated or given to another 
tenant or member.
    7 The borrower must submit Form FmHA or its successor agency under 
Public Law 103-354 1944-29 to the Servicing Office with each payment, 
report of overage, or request for RA as required in paragraph XIIIC2f(1) 
of this exhibit. The calculations on part II of the form must be for 
tenants or members in residence on the first day of the month preceding 
the payment due date. All calculations will be made as if the tenant or 
member was in residence for the full month. Adjustments Will Not Be Made 
to the Borrower's Subsidy, RA Request, Payment, or Overage Charges for 
Persons Moving in or Out After the First of the Month. (See Guide Letter 
1930-1 for any necessary Servicing Official's response after review of 
Form FmHA

[[Page 247]]

or its successor agency under Public Law 103-354 1944-29.)
    8 Paragraph VIII B 4 b of this exhibit is a required lease or 
occupancy agreement provision requiring tenants or members to notify the 
management of any change in gross household income or adjustments to 
income, or size or composition of household. Upon receipt of such 
notice, the borrower must promptly obtain a new certification form and 
income verification and submit it to the Servicing Office when there is 
a permanent change in size or composition of the household, or a 
permanent increase of $40 or more per month ($480 per year) or a 
permanent decrease of $20 or more per month ($240 per year) in gross 
household income or adjustment to income.
    9 When a borrower/agent believes that an applicant/tenant or member 
certification or income verification is inaccurate, they may provide the 
information including the tenant's or member's social security number to 
the Servicing Office requesting a further verification through the 
appropriate State employment agency. The Servicing Office will forward 
the request to the State Director for submission to the State Agency 
that keeps records on the incomes of wage earners. The State Director 
will develop a method of obtaining the information from the State 
Agency. Any reasonable cost for information provided by a State shall be 
a project expense.
    10 Landlords may use the following emergency certification/
recertification procedure in the unusual cases described herein, but 
must otherwise meet the FmHA or its successor agency under Public Law 
103-354 submission requirements stated in paragraph VII F 1 of this 
exhibit:
    a When a tenant or member applicant needs to initially occupy before 
income verification is complete, or when a borrower has been unable to 
initiate recertification on time, an ``estimated'' verification may be 
performed and the certification and the lease or occupancy agreement 
completed and marked ``subject to verification of income.'' Temporary 
verification may also be obtained through contacts with individuals who 
may be knowledgeable of the person's income. When no other verifiable 
source is available, a written, dated, and signed statement, certifying 
that the disclosed annual gross income of the household is accurate to 
the best knowledge of the tenant or member, may be accepted. After 
normal verification is completed, any needed adjustment in tenant or 
member contribution can be made and recorded on the certification and 
when appropriate, the lease or occupancy agreement.
    b When a tenant or member decides to continue occupancy after giving 
indication of vacating the project and insufficient time remains to 
complete the verification of income or when an employer fails to return 
a verification of income on time, the procedure of F 10 a of this 
paragraph may be followed.
    c When a delay is caused by circumstances beyond the control of the 
tenant or landlord, such as when delays are encountered in receiving 
verification of income, employment, etc., from third party sources, the 
procedure of F 10 a of this paragraph may be followed.
    G Mid-month tenant or member certification. The certification 
effective date for a tenant or member starting occupancy on a day other 
than the first day of the month shall be the first day of the following 
month. Certification shall be completed according to paragraph VII F of 
this exhibit.
    H Resolution of suspected inaccurate information. Should forms, 
interviews, unit inspections, complaints, or other information bring 
into question the accuracy or reasonableness of information relied upon 
to qualify the residents for occupancy or benefits, it should be further 
explored and resolved by the owner and/or management agent. Should the 
matter remain unsolved, the borrower or management agent may forward a 
report to the Agency along with a recommendation for further action. The 
Agency may evaluate such material to determine whether further action is 
warranted. Such actions may include those authorized under FmHA or its 
successor agency under Public Law 103-354 Instructions 2012-B, 1940-M, 
or subpart N of part 1951 of this chapter (available in any FmHA or its 
successor agency under Public Law 103-354 office).
    VIII Lease Agreements, Occupancy Agreements, Rules, and Other Tenant 
Information: A lease agreement is a written contract between a tenant 
and landlord assuring the tenant quiet, peaceful enjoyment and exclusive 
possession of a specific dwelling unit in return for payment of rent and 
reasonable use and protection of the property. The contract between a 
cooperative member and the cooperative is called an occupancy agreement. 
Should the provisions of any lease or occupancy agreement be in 
violation of any State or local law, it may be modified to the extent 
needed to comply with the law; however, the change should be as 
consistent as possible with the provisions set out herein.
    A Form of lease or occupancy agreement. Each State Director is 
encouraged to prepare a sample lease form complying with individual 
State laws and FmHA or its successor agency under Public Law 103-354 
requirements. Occupancy agreements for cooperatives are to be prepared 
in accordance with applicable State laws and subpart E of part 1944 of 
this chapter. The State Director may incorporate clauses which meet a 
specific need in compliance with State law. Any sample lease must be 
reviewed and approved by the OGC before being provided to borrowers

[[Page 248]]

as a guide for preparing an acceptable project lease.
    1 All leases will be in writing. Initial leases for units for which 
tenants are eligible must cover a period of 1 year. If the tenant is not 
subject to termination of occupancy according to paragraph XIV A of this 
exhibit, a renewal lease, or an addendum of lease extension, shall cover 
a period of 1 year. Leases for LH may be for shorter periods where 
occupancy is typically seasonal. Leases for all tenants signed after 
notification of intent to prepay, but prior to prepayment, may be for a 
term which ends on the date of prepayment. Leases for tenants who 
entered a project with a Letter of Priority Entitlement and who are 
temporarily occupying a unit for which they are not occupancy eligible, 
will have the clause in paragraph VIII C 1 of this exhibit inserted to 
deal with their obligation to move when an eligible unit becomes 
available.
    2 Leases and occupancy agreements must contain an appropriate 
escalation clause permitting changes in basic and/or note rate rents or 
occupancy charges prior to the expiration of the document. Such changes 
would normally be necessary due to changing utility and other operating 
costs. Any changes must be approved by FmHA or its successor agency 
under Public Law 103-354 according to exhibit C of this subpart. Leases 
must specify that no increases in tenant contribution to rent will take 
place due to prepayment of the FmHA or its successor agency under Public 
Law 103-354 loan during the term of the lease. Leases must also state 
that should any Federal subsidies paid to the borrower on behalf of 
tenants be suspended or canceled, due to a monetary or nonmonetary 
default by the borrower, the monetary payment made by the tenant to the 
borrower (or, when applicable, the monetary payment received by the 
tenant from the borrower) shall not change over that which would have 
been required had the subsidy remained in place.
    3 Pursuant to the Fair Housing Amendments Act of 1988, no provision 
may be incorporated into a lease that would prohibit:
    a Occupancy by families with children under 18 years of age. As 
applied to housing designated as elderly, those residing with the 
elderly household who are under 18 years of age may not be excluded 
under the terms of the lease.
    b Occupancy by a person with a handicap who is willing and able to 
make reasonable modifications to an apartment unit, at the tenant's 
expense, to afford such person full enjoyment of the apartment. The 
owner may include in the lease, where reasonable, permission to occupy 
the apartment on the condition the tenant agrees to restore the interior 
of the apartment to the condition that existed before any modifications, 
reasonable wear and tear excepted.
    4 In areas where there is a concentration of non-English speaking 
individuals in the project or in the community, leases or occupancy 
agreements and the established rules and regulations for the project 
written in both plain English and the appropriate non-English language 
must be available to the tenants or members. The tenant or member should 
have the opportunity to examine and execute either form of lease or 
occupancy agreement.
    5 The form of lease or occupancy agreement to be used by the 
borrower and any modifications of the same must be approved by the FmHA 
or its successor agency under Public Law 103-354 Servicing Official. 
When submitting a lease or occupancy agreement form for FmHA or its 
successor agency under Public Law 103-354 approval, it must be 
accompanied by a letter from a practicing attorney licensed in the State 
regarding its legal sufficiency and compliance with State law and FmHA 
or its successor agency under Public Law 103-354 regulations.
    6 A copy of a properly completed and approved exhibit A-6 of subpart 
E of part 1944 (when the tenant or member will pay utilities) and a copy 
of the established rules and regulations for the project will be 
provided to the tenant or member as attachments to the lease or 
occupancy agreement.
    7 A copy of a properly completed and signed Form FmHA or its 
successor agency under Public Law 103-354 1944-8 or HUD Form 50059 or 
other HUD approved form for those tenants receiving HUD section 8 tenant 
subsidy will be used to calculate each tenant's contribution and will be 
provided to the tenant as an attachment to the lease.
    B Required lease or occupancy agreement clauses. The following 
clauses will be required in leases used in connection with FmHA or its 
successor agency under Public Law 103-354-financed housing projects. 
Only clauses in paragraphs VIII B 1, VIII B 4 b, VIII B 4 d, VIII B 4 e, 
VIII B 5, and VIII B 7 of this exhibit are applicable to cooperative 
occupancy agreements.
    1 All lease and occupancy agreements must include a statement 
indicating that the project is financed by FmHA or its successor agency 
under Public Law 103-354 and is subject to nondiscrimination provisions 
of title VI of the Civil Rights Act of 1964, title VIII of the Fair 
Housing Act, section 504 of the Rehabilitation Act of 1973, and the Age 
Discrimination Act of 1975; and that all complaints are to be directed 
to the Administrator, FmHA or its successor agency under Public Law 103-
354, USDA, Washington, DC 20250. However, complaints of Fair Housing 
violations may be sent directly to the Secretary of Housing and Urban 
Development, Washington, DC 20410.
    2 All lease agreements must specify that should the unit become 
overcrowded or underutilized or should the tenant no longer

[[Page 249]]

meet the eligibility requirements of the project during the term of the 
lease agreement, he/she will be required to vacate the unit at the end 
of the lease term unless eligibility can be established following 
specified steps, such as moving to an appropriate size unit, or an 
exception is granted by management.
    3 All lease agreements must contain a provision that a tenant 
household's tenancy still exists during the time that the tenant 
household's personal possessions remain in the apartment unit after the 
tenant household has personally ceased occupancy with the intent to 
vacate and leave the project, until such time the personal possessions 
have been removed voluntarily or by legal means, subject to the 
provision of State or local law in such matters.
    4 All leases used in FmHA or its successor agency under Public Law 
103-354-financed RRH projects must include the following clauses except 
for persons who are elderly, disabled, or handicapped living in a full 
profit plan project unless otherwise noted. (Cooperative occupancy 
agreements must include the clauses contained in paragraphs VIII B 4 b, 
VIII B 4 d, and VIII B 4 e of this exhibit.)
    a ``I understand that I will no longer be eligible for occupancy in 
this project if my income exceeds the maximum allowable adjusted income 
as defined periodically by the Farmers Home Administration or its 
successor agency under Public Law 103-354 for the (State/Territory).''
    b ``I agree I must immediately notify the [landlord or cooperative] 
when there is a change in my gross income or adjustment to income, or 
when there is a change in the number of persons living in the household. 
I understand my rent or benefits may be affected as a result of this 
information. I also understand that failure to report such changes may 
result in my losing benefits to which I may be entitled or may result in 
the [landlord or cooperative] taking corrective action if benefits were 
mistakenly received. I understand the corrective action the [landlord or 
cooperative] may take includes the initiation of a demand for repayment 
of any benefits or rental subsidies improperly received, initiation of a 
notice to cancel any rental assistance or section 8 assistance being 
received for the balance of my certification period, initiation of a 
notice to increase my monthly rent to $---- per month (note rate rent 
for Plan II projects or 125 percent of rent in Plan I projects), or 
initiation or a notice of termination. I understand that one or more of 
these remedies may be initiated at the option of the [landlord or 
cooperative].''
    c ``I understand that I must promptly notify the lessor of any 
extended absences and that if I do not personally reside in the unit for 
a period exceeding 60 consecutive days, for reasons other than health or 
emergency, my net monthly tenant contribution shall be raised to $---- 
per month (note rate rent for Plan II projects or 125 percent of rent in 
Plan I projects) for the period of my absence exceeding 60 consecutive 
days. I also understand that should any rental assistance be suspended 
or reassigned to other eligible tenants, I am not assured that it will 
still be available to me upon my return. I also understand that if my 
absence continues, that as landlord, you may take the appropriate steps 
to terminate my tenancy.''
    d ``I understand that should I receive occupancy benefits to which I 
am not entitled due to my/our failure to provide information or due to 
incorrect information provided by me or on my behalf by others, or for 
any other household member, I may be required to make restitution and I 
agree to repay any amount of benefits to which I was not entitled.''
    e ``I understand that income certification is a requirement of 
occupancy and I agree to promptly provide any certifications and income 
verifications required by the owner or cooperative board to permit 
determination of eligibility and, when applicable, the monthly tenant or 
member contribution to be charged.''
    5 Leases and occupancy agreements used by borrowers participating in 
the FmHA or its successor agency under Public Law 103-354 RA program 
will contain the following clauses. (These clauses can be made an 
addendum to the lease and they must be signed by the lessor and lessee):
    ``I understand and agree that as long as I receive rental 
assistance, my gross monthly contribution (as determined on the latest 
Form FmHA or its successor agency under Public Law 103-354 1944-8, which 
must be attached to this lease) for rent or occupancy charge and 
utilities will be $----. If I pay any or all utilities directly (not 
including telephone or cable TV), a utility allowance of $---- will be 
deducted from my gross monthly contribution and my resulting net monthly 
contribution will be $----. If my net monthly contribution would be less 
than zero, the lessor will pay me $----.
    I also understand and agree that my monthly contribution under this 
lease or occupancy agreement may be raised or lowered, based on changes 
in the household income or adjustments to income, failure to submit 
information necessary to certify income, changes in the number and age 
of persons living in the household, and on the escalation clause in this 
contract. Should I no longer receive rental assistance as a result of 
these changes, or the rental assistance agreement executed by the [owner 
or cooperative] and FmHA or its successor agency under Public Law 103-
354 expires, I understand and agree that my monthly contribution may be 
adjusted to no less than $----

[[Page 250]]

(basic) nor more than $---- (note rate) during the remaining term of 
this [lease or occupancy agreement], except that based on the escalation 
clause in this contract these rates may be changed by a Farmers Home 
Administration or its successor agency under Public Law 103-354 approved 
rent or occupancy charge change.''

[Note No. 1: Eligible borrowers with LH loans and grants, Plan I direct 
RRH or insured RRH loans approved before August 1, 1968, may omit the 
words ``no less than $---- (Basic) nor more than'' from the last 
sentence of the above statement.]

    ``I understand that every effort will be made to provide rental 
assistance so long as I remain eligible and the rental assistance 
agreement between the [owner or cooperative] and FmHA or its successor 
agency under Public Law 103-354 remains in effect. However, should this 
assistance be terminated I may arrange to terminate this contract, 
giving proper notice as set forth elsewhere in this [lease or occupancy 
agreement].''

[Note No. 2: The following additional clause is needed by those 
borrowers with Plan I direct or insured RRH loans approved before August 
1, 1968.]

    ``I further agree that should I be permitted to occupy when my 
income exceeds maximum limits, I shall pay a 25 percent rental rate 
surcharge in addition to my rental rate of $----.''
    6 For leases with tenants occupying units in which borrowers are 
operating under Plan I either with or without interest credit approved 
on or after August 1, 1968:
    ``I understand and agree that my rent rate of $---- (includes) 
(excludes) my cost of utilities. I further understand and agree that 
should I be permitted to occupy when my income exceeds maximum limits, I 
shall pay a 25 percent rental rate surcharge in addition to my rental 
rate.''
    7 For leases or occupancy agreements in projects which borrowers are 
operating under Plan II Interest Credit Only:
    ``I understand and agree that my gross monthly contribution as 
determined on the latest Form FmHA or its successor agency under Public 
Law 103-354 1944-8, which must be attached to this contract, for [rent 
or occupancy charge] and utilities will be $----.
    If I pay any or all utilities directly (not including telephone or 
cable TV), a utility allowance of $---- will be deducted from my gross 
monthly [rent or occupancy charge] except that I will pay not less than 
the basic rent nor more than the note rate [rent or occupancy charge] 
stated below. My net monthly [rent or occupancy charge] will be $----. I 
understand that should I receive rental subsidy benefits (interest 
credit) to which I am not entitled, I may be required to make 
restitution and I agree to pay any amount of benefit to which I was not 
entitled. I also understand and agree that my monthly tenant [rent or 
occupancy charge] under this [lease or occupancy agreement] may be 
raised or lowered based on changes in the household income, failure to 
submit information necessary to certify income, changes in the number 
and age of persons living in the household, and on the escalation clause 
in this contract. My [rent or occupancy charge] will not, however, be 
less than $---- (basic) nor more than $---- (note rate) during the term 
of this contract, except that based on the escalation clause in this 
[lease or occupancy agreement], these rental rates or occupancy charges 
may be changed by a Farmers Home Administration or its successor agency 
under Public Law 103-354 approved [rent or occupancy charge] change.''
    8 Leases used by borrowers with LH loans and/or grants will use the 
following additional clauses:
    a ``I understand that the project is operated and maintained for the 
purpose of providing housing for domestic farm laborers and their 
immediate families. I do hereby certify that a substantial portion of my 
immediate family income is and will be derived from farm labor. I 
further understand that domestic farm labor means persons who receive a 
substantial portion of their income as laborers on farms in the United 
States and either are citizens of the United States, or reside in the 
United States, Puerto Rico, or the Virgin Islands, after being legally 
admitted for permanent residence therein, and may include the immediate 
families of such persons. Laborers on farms may include laborers engaged 
in handling agricultural commodities while in the unprocessed stage. It 
also includes labor for the production of aquatic organisms under a 
controlled or selected environment.''
    b ``I agree that if my household income ceases to be substantially 
from farm labor for reasons other than disability or retirement, I will 
vacate my dwelling after proper notification by the owner.''
    9 All leases, including all renewal leases, shall contain the 
following clause:
    ``It is understood that the use, attempted use, or possession, 
manufacture, sale, or distribution of an illegal controlled substance 
(as defined by local, State, or federal law) while in or on any part of 
this apartment complex or cooperative is an illegal act. It is further 
understood that such action is a material lease violation. Such 
violations (hereafter called a ``drug violation'') may be evidenced upon 
the admission to or conviction of a drug violation.
    The landlord may require any lessee or other adult member of the 
tenant household occupying the unit (or other adult or nonadult person 
outside the tenant household who is using the unit) who commits a

[[Page 251]]

drug violation to vacate the leased unit permanently, within timeframes 
set by the landlord, and not thereafter enter upon the landlord's 
premises or the lessee unit without the landlord's prior consent as a 
condition for continued occupancy by members of the tenant household. 
The landlord may deny consent for entry unless the person agrees to not 
commit a drug violation in the future and is either actively 
participating in a counseling or recovery program, complying with court 
orders related to a drug violation, or completed a counseling or 
recovery program.
    The landlord may require any lessee to show evidence that any 
nonadult member of the tenant household occupying the unit, who 
committed a drug violation, agrees to not commit a drug violation in the 
future, and to show evidence that the person is either actively seeking 
or receiving assistance through a counseling or recovery program, 
complying with court orders related to a drug violation, completed a 
counseling or recovery program within timeframes specified by the 
landlord as a condition for continued occupancy in the unit. Should a 
further drug violation be committed by any nonadult person occupying the 
unit the landlord may require the person to be severed from tenancy as a 
condition for continued occupancy by the lessee.
    If a person vacating the unit, as a result of the above policies, is 
one of the lessees, the person shall be severed from the tenancy and the 
lease shall continue among any other remaining lessees and the landlord. 
The landlord may also, at the option of the landlord, permit another 
adult member of the household to be a lessee.
    Should any of the above provisions governing a drug violation be 
found to violate any of the laws of the land the remaining enforceable 
provisions shall remain in effect. The provisions set out above do not 
supplant any rights of tenants afforded by law.
    C Special lease clause.
    1 Handicapped accessible units occupied by those not needing 
specially designed features. A clause should be used in addition to the 
required clauses in the special situation where management temporarily 
assigns a nonhandicapped households to occupy a handicapped accessible 
unit specially designed for handicapped households under the conditions 
of paragraph VI D 2 g of this exhibit. Any agreements between the 
landlord and the tenant concerning who bears the costs of moving to 
another suitably sized vacant unit should be documented.
    ``I/we acknowledge that I/we am/are occupying a designated 
handicapped accessible unit. I/we acknowledge that priority for such 
units is given to those needing special physical design features. I/we 
acknowledge that I/we am/are permitted to occupy the unit until 
management issues a notice that a priority applicant is on the waiting 
list and that I/we must move to another suitably sized vacant unit in 
the project. Upon receiving this notice, I/we agree to move at [my/our 
own] [shared (as agreed)] [project] expense within 30 calendar days to 
the suitably sized vacant unit within the project, if one is available. 
I/we further understand my/our rental rate will change, when 
appropriate, to the rental rate for the unit I/we move to and this lease 
will be modified accordingly.''
    2 Prepayment subject to restrictive-use covenants. Upon FmHA or its 
successor agency under Public Law 103-354 approval and acceptance of a 
prepayment, subject to restrictive-use covenants, the landlord will 
ensure all existing tenant leases and renewals of such leases are 
amended to include the following provisions:
    ``As a condition of the Government's approval of a request to accept 
early payment on notes owed, the tenant household is protected, to the 
extent herein disclosed, against involuntary displacement (except for 
good cause) and against having the tenant household contribution level 
(rent) materially increased until [insert a date 20 years from the date 
of the last FmHA or its successor agency under Public Law 103-354 loan 
or servicing action making the loan subject to prepayment restrictions, 
or insert ``the tenant household decides to move'' depending on the 
restrictive-use provision accepted by the owner (see Sec.  
1965.215(e)(5) of subpart E of part 1965 of this chapter)]. 
Specifically, the tenant household contribution level (rent) must be 
consistent with those necessary to maintain the project for low- and 
moderate-income tenants. Those tenant households whose tenant household 
contribution level (rent) did not exceed 30 percent of their monthly 
adjusted income at the time the prepayment was accepted, may have their 
tenant household contribution level (rent) raised to the lesser of 30 
percent of their monthly adjusted income or 10 percent of their gross 
monthly income per year. Those tenant households whose tenant household 
contribution level (rent) exceeded 30 percent of their monthly adjusted 
income at the time the prepayment was accepted, may have their tenant 
household contribution level (rent) raised to the lesser of the latest 
U.S. Consumer Price Index or 10 percent per year.''
    D Other lease provisions. All leases or occupancy agreements must 
contain provisions covering:
    1 Names of the parties to the contract and all individuals to reside 
in the unit and the identification of the unit.
    2 The amount and due date of monthly contributions.
    3 Any penalty for late payment of monthly contributions according to 
paragraph IX B of this exhibit.

[[Page 252]]

    4 The utilities and quantities thereof and the services and 
equipment to be furnished to the tenant or member by the management or 
cooperative and the tenant's or member's responsibility to pay utility 
charges promptly when due.
    5 The process by which contribution and eligibility for occupancy 
shall be determined and redetermined including:
    a The frequency of such contribution and eligibility determinations.
    b The information which the tenant or member shall supply to permit 
such determinations: Usually, income verification; names and ages of 
household members; in congregate facilities, only that essential 
information about the person's request for provided service(s) to 
determine whether the project provides the services requested by the 
applicant/tenant and/or to determine how to best serve the applicant's/
tenant's/member's request with reasonable accommodation, referral 
services, etc. In the case of a group home, the information may also 
include an assessment by a professional medical examiner or 
practitioner, social service caseworker, representative of an advocacy 
group, member of the clergy, etc., that the tenant/applicant provides to 
support the application or recertification for housing and services.
    c The standards by which rents or occupancy charge, eligibility, and 
appropriate dwelling unit size shall be determined.
    d Tenant's household agreement to move to a unit of appropriate size 
if the household size changes.
    e The circumstances under which a tenant or member may request a 
redetermination of tenant contribution.
    f The effect of misrepresentation by the tenant or member of the 
facts upon which contributions or eligibility determinations are based.
    g The time at which shelter cost change, contribution changes, or 
notice of ineligibility shall become effective.
    6 The limitation upon the tenant or member of the right to the use 
and occupancy of the dwellings. Limitations may not be discriminatory in 
nature.
    7 The responsibilities of the tenant or member in the maintenance of 
the dwelling and the obligation for intentional or negligent failure to 
do so.
    8 Agreement of management or cooperative to accept a tenant or 
member contribution without regard to any other charges owed by tenant 
or member to management or cooperative and to seek separate legal remedy 
for the collection of any other charges which may accrue to management 
from tenant(s) or member(s).
    9 The responsibility of management to maintain the buildings and any 
common areas in a decent, safe, and sanitary condition in accordance 
with local housing codes and FmHA or its successor agency under Public 
Law 103-354 regulations, and its liabilities for failure to do so.
    10 The responsibility of management or cooperative to provide the 
tenant or member with a written statement of the condition of the 
dwelling unit (when the tenant or member initially enters into occupancy 
and when vacating the dwelling unit), and the conditions under which the 
tenant or member may participate in the inspection of the premises which 
is the basis for such statement.
    11 The circumstances under which management or the cooperative may 
enter the premises during the tenant's or member's possession thereof, 
including a periodic inspection of the dwelling unit as a part of a 
preventive maintenance program.
    12 Responsibility of tenant or member to advise management or the 
cooperative of any planned absence for an extended period, usually 2 
weeks or more.
    13 Agreement that tenant or member may not let or sublet all or any 
part of the premises without the consent of management or cooperative 
and FmHA or its successor agency under Public Law 103-354.
    14 Understanding that should the RRH project be sold to a buyer 
approved by FmHA or its successor agency under Public Law 103-354, the 
lease will be transferred to the new owner.
    15 The formalities that shall be observed by management or the 
cooperative and the tenant or member in giving notice one to the other 
as may be called for under the terms of the lease or occupancy 
agreement.
    16 The circumstances under which management or the cooperative may 
terminate the lease or occupancy agreement, all limited to good cause, 
and the length of notice required for the tenant or member to exercise 
the right to terminate.
    17 The procedure for handling tenant's or member's abandoned 
property as provided by State law.
    18 Disposition of lease or occupancy agreement if building becomes 
uninhabitable because of fire or other disaster. Right of owner or 
cooperative to repair or rehabilitate the building within a certain 
period or terminate the lease or occupancy agreement.
    19 The agreement that any tenant or member grievance or appeal from 
management's or cooperative's decision shall be resolved in accordance 
with procedures consistent with FmHA or its successor agency under 
Public Law 103-354 regulations covering such procedures which are posted 
in the rental office or at the cooperative.
    20 That the lease may be terminated by the tenant, with 30 days 
notice, prior to expiration of its term for ``good cause'' such as 
moving to another location for employment, loss of job, severe illness, 
death of spouse, or other reasons customary or mandatory in

[[Page 253]]

the community, or after notification by RRH borrower of intent to 
prepay. The prior notice on which a cooperative member may cancel an 
occupancy agreement for ``good cause'' shall be 4 months.
    21 The usual signature clause attesting that the lease or occupancy 
agreement has been executed by the parties.
    E Prohibited lease or occupancy agreement clauses. Clauses in the 
classifications listed below shall not be included in any lease or 
occupancy agreement.
    1 Confession of judgment. Prior consent by tenant or member to any 
lawsuit the landlord or board may bring against the tenant or member in 
connection with the lease or occupancy agreement and to a judgment in 
favor of the landlord or board.
    2 Distraint for rental or occupancy charge or other charges. 
Authorization to the landlord or cooperative board to take property of 
the tenant or member and hold it as a pledge until the tenant or member 
performs any obligation which the landlord has determined the tenant or 
member has failed to perform.
    3 Exculpatory clause. Agreement by tenant or member not to hold the 
landlord or landlord's agents or cooperative board liable for any acts 
or omissions whether intentional or negligent on the part of the 
landlord or the landlord's authorized representative or agents or the 
cooperative board.
    4 Waiver of legal notice by tenant or member prior to actions for 
eviction or money judgments. Agreement by tenant or member that the 
landlord or board may institute suit without any notice to the tenant or 
member that the suit had been filed.
    5 Waiver of legal proceedings. Authorization to the landlord or 
board to evict the tenant or member or hold or sell the tenant's or 
member's possessions whenever the landlord or board determines that a 
breach or default has occurred.
    6 Waiver of jury trail. Authorization to the landlord's or board's 
lawyer to appear in court for the tenant or member and to waive the 
tenant's or member's right to trail by jury.
    7 Waiver of right to appeal judicial error in legal proceedings. 
Authorization to the landlord's or board's lawyer to waive the tenant's 
or member's right to appeal on the ground of judicial error in any suit 
or the tenant's or member's right to file a suit in equity to prevent 
the execution of a judgment.
    8 Tenant or member chargeable with costs or legal actions regardless 
of outcome. Agreement by the tenant or member to pay attorney's fees or 
other legal costs whenever the landlord or board decides to take action 
against the tenant or member even though the court finds in favor of the 
tenant or member. (Omission of this clause does not mean that the tenant 
or member, as a party to a lawsuit, may not be obligated to pay 
attorney's fees or other costs if the tenant or member loses the suit.)
    F Modification of lease or occupancy agreement and notification to 
tenants or members. The landlord or board may modify the terms and 
conditions of the lease or occupancy agreement with FmHA or its 
successor agency under Public Law 103-354 prior consent, effective at 
the end of the initial term or a successive term, by serving an 
appropriate notice on the tenant or members, together with the tender of 
a revised lease or occupancy agreement or an addendum revising the 
existing lease or occupancy agreement. This notice and tender shall be 
delivered to the tenant or member either by first-class mail, properly 
stamped and addressed or hand-delivered to the premises to an adult 
member of the household. The date on which the notice shall be deemed to 
be received by the tenant or member shall be the date on which the 
first-class letter is mailed or the date on which the copy of the notice 
is delivered to the premises. The notice must be received at least 30 
days prior to the last date on which the tenant or member has the right 
to terminate the occupancy without executing the revised lease or 
occupancy agreement. The notice must advise the tenants or members that 
they may appeal modifications to the lease or occupancy agreement in 
accordance with subpart L of part 1944 of this chapter if the 
modification will result in a denial, substantial reduction, or 
termination of benefits being received. The same notification will be 
applicable to any changes in the rules and regulations for the project.
    G Occupancy rules and informative material. Occupancy rules 
establish the basis for the management-tenant or member relationship. 
Occupancy rules and regulations must be provided and explained by the 
project management to enable the tenant or member to understand the 
purposes, objectives, and standards of the project. The rules will be 
approved by the FmHA or its successor agency under Public Law 103-354 
State Director or designee, generally together with the project 
management plan, management agreement, and lease or occupancy agreement 
form.
    1 All rules for occupancy and rent or occupancy charge structures 
will be in writing posted conspicuously in the borrower's and/or 
manager's offices and provided to each tenant or member with the lease 
or occupancy agreement.
    2 Proposed changes of any rules for occupancy must be made available 
to each tenant or member at least 30 days in advance of implementation, 
and tenants or members must be advised that they may appeal changes in 
accordance with FmHA or its successor agency under Public Law 103-354 
tenant grievance and appeals procedure subpart L of part 1944 of this 
chapter.

[[Page 254]]

    3 Landlords or cooperatives may not place unreasonable restrictions 
on residents desiring to use federally financed community rooms for 
their enjoyment. No rule may infringe on the rights of the rental 
tenants to organize an association of tenants. Such associations may be 
organized to bargain with management, as well as to act socially and/or 
provide for the welfare of its members. The project management person or 
organization should be available and willing to work with a tenant 
organization. Examples of unreasonable restrictions include rules 
requiring management representatives to be present in order to use 
community rooms, rules barring tenant or cooperative organizational 
meetings from using the rooms, or rules requiring management 
representatives to be present at any resident organizational meeting 
held in community rooms.
    4 Rules may be promulgated that prohibit activities which are 
detrimental to management, tenants and members. Such activities include 
threats to the health or safety of other tenants or members or the 
employees of the borrower, interference with the quiet enjoyment of the 
premises by other tenants or members, or damage to the physical 
structure of the project.
    5 The borrower may choose to provide rules for nonelderly projects 
that either permit or exclude pets except that no rules may be 
promulgated that would prohibit the occupancy of a household member who 
requires the services of a service animal to achieve the normal function 
of that household member.
    6 For each RRH project or portion of a project specifically 
designated for the elderly, the borrower must have established project 
rules permitting elderly, handicapped, or disabled tenants to keep 
commonly accepted household pets. These pet rules are to be governed by 
the following guidelines:
    a Pet rules must not:
    (1) Prohibit, prevent, restrict, or discriminate against any tenant 
who owns or keeps a pet in their apartment unit, with respect to 
continued occupancy in the project unless the approved project pet rules 
are violated.
    (2) Prohibit, prevent, restrict, or discriminate against any 
applicant who owns a pet with respect to obtaining occupancy in the 
project.
    (3) Charge an extra monthly rental charge for pets.
    b Borrowers with operational projects must consult with the tenants 
of the project when revising pet rules and retain documentation on how 
the consultation process was conducted.
    c. Borrowers with new projects will establish pet rules prior to 
occupancy, but may revise those rules based on tenant comments and 
suggestions received after rent-up begins.
    d Pet rules will be approved by FmHA or its successor agency under 
Public Law 103-354 as part of, or an amendment to, the project lease. 
FmHA or its successor agency under Public Law 103-354 approval will be 
granted when the rules meet the provisions and intent of this 
subparagraph.
    e Pet rules will be reasonable and will be written to consider at 
the least the following factors:
    (1) Density of project units.
    (2) Pet size.
    (3) Type of pet.
    (4) Potential financial obligations of tenants who own or keep pets.
    (5) Standards of pet care.
    (6) Pet exercise areas.
    (7) State and local animal laws or ordinances.
    (8) Liability insurance.
    f Pet rules must allow the borrower or project manager authorization 
to remove from the project any pet whose conduct or condition is duly 
determined to constitute a nuisance or threat to the health or safety of 
other tenants or members in the project or persons in the surrounding 
community.
    7 Initial rules will be attached to the lease or occupancy 
agreement. Approval by FmHA or its successor agency under Public Law 
103-354 for changers and additions may be requested as needed.
    8 The following items illustrate areas that are among those which 
should be addressed in rules or informative materials developed by 
management and provided to all tenants or members prior to move-in:
    a Explanation of rights and responsibilities under the lease or 
occupancy agreement. Where a non-English language is common to a project 
area, a lease or occupancy agreement written in that language should 
also be provided.
    b Rent payment or occupancy charge policies and procedures should be 
fully explained.
    c Policy on periodic inspection of units.
    d Responding to tenant or member complaints.
    e Maintenance request procedure.
    f Project services and facilities available to tenants or members.
    g Office location, hours, and emergency telephone numbers.
    h Map showing location of community facilities including schools, 
health care, libraries, parks, etc.
    i Restrictions on storage and prohibition against abandoning 
vehicles in the project area.
    j A rental project newsletter or other printed material distributed 
to potential tenants or the public. If a newsletter or other printed 
material is desired, it must contain an appropriate nondiscrimination 
statement, or fair housing slogan or logotype.

[[Page 255]]

    k Community and public transportation schedules.
    9 Tenant or member may be permitted to have a guest(s) visit their 
household. However, the landlord reserves the right to request a 
recorded declaration of domicile or proof of domicile if it is suspected 
that the guest is an unauthorized household occupant. Such suspicion may 
arise whenever an adult person(s) is making reoccurring visits or one 
continuous visit of 14 days and/or nights in a 45-day period without 
prior notification of the management. Should the tenant or person in 
question not provide the requested information needed to confirm other 
domicile, or should the facts be sufficient to evidence domicile in the 
project, then the landlord may consider such person(s) a member of the 
tenant household and may enforce any lease covenants shown to be broken 
and/or require recertification.
    10 No provisions may be incorporated into occupancy rules that would 
discriminate against or otherwise deny equal opportunity to any person 
(whether the tenant or a person associated with the tenant) in the 
terms, conditions, or privileges of rental of a dwelling unit, or in the 
provision for services or facilities in connection wherewith, because of 
race, color, religion, sex, familial status, National origin, or 
handicap.
    11 The borrower must establish and enforce rules to ensure there are 
reasonable accommodations to persons who are handicapped or disabled.
    H Security deposits.
    1 Security deposits are encouraged and they should be used when it 
is reasonable and customary for the area for assurance of rental payment 
or charges for damages. The amount of security deposits must be 
reflected in the borrower's management plan and may not be changed 
without the written consent of the FmHA or its successor agency under 
Public Law 103-354 Servicing Official. When security deposits are used, 
they should not exceed an amount equal to the net tenant contribution 
for one month or basic rent, whichever is greater. Families receiving a 
HUD rental subsidy will pay security deposits according to HUD 
requirements. In an elderly project, the amount of additional security 
deposit for pets must be reasonable and not designed to prohibit or 
discourage tenancy but in no case should it exceed the basic rent of the 
project. Where a service animal is necessary for the normal function of 
a household member, an additional security deposit for the animal may 
not be charged. A membership fee, equal to one month's occupancy charge, 
will be required from members of a cooperative.
    2 Security deposits for persons eligible for RA or Section 8 
assistance shall be administered in a manner to prevent hardship on the 
household. If such tenants or members cannot pay the full amount 
initially, they may be given terms that may ordinarily:
    a For RRH projects, not exceed a downpayment of 30 percent of 
adjusted monthly income plus $15 per month or that amount needed monthly 
to complete the security deposit within 3 months, whichever is greater 
(landlords may provide payment over longer terms if desired). For RCH 
projects, not exceed an initial payment of $25 plus the amount needed 
monthly to complete the membership fee within 3 months (longer terms may 
be permitted if desired by the project). Should installments not be met, 
the total security deposit charge may become due and payable in full.
    b For low-income farmworkers in an LH project, not exceed $25 
downpayment and $15 per month until an equivalent of one month's project 
rent is reached. In the case of migrants who will occupy the units for a 
short period of time, exception to this policy by FmHA or its successor 
agency under Public Law 103-354 may be made upon written request from 
the borrower when it is shown that such deposits need to be raised to 
protect the interest of the government and it will not create a hardship 
on the tenants.
    3 Security deposits or membership fees shall be handled in 
accordance with any State or local laws governing security deposits. 
Both security deposits and membership fees shall be deposited in a 
separate account when required by State or local law, and such funds 
must be held in a Federally insured institution, and shall be handled in 
accordance with any State or local laws governing such deposits. Funds 
in the security deposit account shall only be used for authorized 
purposes as intended and represented by the project management in the 
management plan, and until so used, shall be held by the borrower in 
trust for the respective tenants. Funds in the membership fee account 
shall only be used for authorized purposes, until so used, shall be held 
by the borrower in trust for the respective members.
    4 Borrowers may assess fair and reasonable charges to the security 
deposit or membership fee for damage and loss caused or allowed by the 
tenant or member. An itemized accounting for such charges must be 
presented to the tenant or member after the move-out inspection provided 
for in paragraph X E 2 of this exhibit, unless the tenant or member has 
abandoned the property and his/her whereabouts are unknown and cannot be 
ascertained after reasonable inquiry.
    5 The owner may not increase, for persons with handicaps, any 
customarily required security or membership fee deposit for restoration 
made to earlier modifications that permitted the handicapped person's 
full enjoyment of the dwelling unit. However, where it is necessary in 
order to ensure with reasonable certainty that funds will be available 
to

[[Page 256]]

pay for the restoration(s) at the end of the occupancy, the borrower may 
negotiate as part of such a restoration agreement, a provision requiring 
that the tenant or member pay into an interest bearing escrow account, 
over a reasonable period, a reasonable amount of money not to exceed the 
cost of the restoration(s). The interest in any such account shall 
accrue to the benefit of the tenant or member.
    I Leases for Section 8 and Section 8 Rental Certificate or Rental 
Voucher tenants/members. Guidance on leases for such tenants/members is 
set out herein; however, the use of any addendum necessary to meet the 
requirements of FmHA or its successor agency under Public Law 103-354, 
HUD, or other provider of subsidy or assistance as needed to comply with 
the requirements of any such other program, may be used as needed. 
Whenever conflicts or disputes arise, the servicing office may forward a 
request for guidance to the State Director, along with any 
recommendation. The State Director may take those actions necessary to 
resolve the issue with the advice and consent of the Office of the 
General Counsel.
    1 Borrowers/Management agents are encouraged to use HUD approved 
lease agreements. Evidence of HUD's approval should be contained in the 
borrower casefile.
    2 The HUD approved lease must include modifications of addenda that 
meet the conditions or requirements of paragraphs VIII A, B1, B2, and B3 
of this subpart.
    3 An FmHA or its successor agency under Public Law 103-354-approved 
lease may also be used when acceptable by HUD and the local housing 
authority when this option proves more practical.
    IX Rent or Occupancy Charge Collection and Account Servicing: Rents 
or occupancy charges should be due on the first day of each month of the 
lease period. The time and place of on-site collection and/or the 
correct address for payment by mail should be well publicized and 
consideration should be given to an after-hours depository if needed.
    A Receipts. A form of serially-numbered receipts should be selected 
for use and the collection agent held accountable for every receipt. 
Optional collection services may be considered when they are available.
    B Delinquencies. A system to identify and detect unpaid rents or 
occupancy charges within the project should be instituted in the 
management plan and made known to tenants in their lease. The borrower 
may adopt the late rental payment penalty and grace period prescribed by 
State law; otherwise, they may not exceed a grace period of 10 days from 
the rental or occupancy charge due date and not have the late payment 
penalty exceed the highest of:
    1 An amount up to $10 after the grace period, or
    2 An amount equal to 5 percent of the tenant's gross tenant 
contribution (GTC) (found at line 30 of Form 1944-8) after the grace 
period,
    3 Any late payment policy established should address unusual 
situations such as tenants receiving income from Social Security, 
pension and retirement type funds that tenants receive routinely in the 
few days following the first day of a month. A 5-day grace period 
following the usual receipt date of such payment could be permitted.
    4 The plan should also address any provisions for waivers of late 
payment penalty, if appropriate
    C Recapture of improperly advanced RA and interest credit. Recapture 
of improperly advanced RA and interest credit will be processed in 
accordance with subpart N of part 1951 of this chapter.
    D Project late fees on Predetermined Amortization Schedule System 
(PASS) accounts.
    1 Project late fees are charged on PASS account loan payments not 
received by FmHA or its successor agency under Public Law 103-354 by 
close of business of the 10th day of the month as further described in 
Sec.  1951.510(c)(2) of subpart K of part 1951 of this chapter.
    2 A borrower may request in writing a waiver of a late fee according 
to Sec.  1951.510(c)(2) of subpart K of part 1951 of this chapter. 
Borrowers may appeal a denial of a request for a late fee waiver under 
the Agency's uniform appeal procedures set out in subpart B of part 1900 
of this chapter.
    3 Late fee waivers are determined to be a benefit to the borrower 
entity and must be reported to IRS by the FmHA or its successor agency 
under Public Law 103-354 Finance Office.
    4 If the cause of the late fee is an FmHA or its successor agency 
under Public Law 103-354 accounting system error, the FmHA or its 
successor agency under Public Law 103-354 may suspend sending monthly 
billings to the borrower until the error is corrected. If delinquency 
persists after correcting the error, late fees will be charged. Late 
fees charged as a result of FmHA or its successor agency under Public 
Law 103-354 error will be administratively corrected and not reported to 
IRS by the FmHA or its successor agency under Public Law 103-354 Finance 
Office.
    5 Except for cooperatives, project late fees are not a project 
expense. Borrowers shall record a line item entry on Form FmHA or its 
successor agency under Public Law 103-354 1930-7 showing late fees, 
offset by an equal transfer-in of the borrower's own funds or a 
reduction of the borrower's return to owner.
    X Maintenance: Maintenance is the process by which a project is kept 
up in all respects and includes land, buildings, and equipment. 
Maintenance responsibilities will

[[Page 257]]

be included in the management plan. Proper maintenance will help to keep 
a good image for the project, help to minimize vacancies, and help to 
preserve the project. Plans and policies for inspections, effective 
maintenance and repair are to be established at the outset and modified 
periodically as needed. The following types of maintenance are 
necessary:
    A Routine maintenance. Routine maintenance and repairs will be those 
cost items and services included in the annual budgets to be paid out of 
the operations and maintenance expense account. It includes regular 
maintenance tasks of the project that can be prescheduled or planned 
for, based on equipment availability and property characteristics tasks 
performed on a regular basis to maintain the appearance of the project 
and to prevent an accumulation of debris and subsequent deterioration.
    B Responsive maintenance. This includes all maintenance tasks 
performed in response to either requests for service from tenants or 
members or unplanned breakdowns. An essential part of any maintenance 
system is to plan for requests coming from the dwelling units and for 
emergencies occurring in the systems serving the apartments. The project 
manager or the cooperative's board of directors should develop a plan to 
focus on: who receives the requests, how they are handled, how specific 
employees or members are assigned to the tasks, and what kind of records 
are kept. The capacity of the project manager or board to respond to 
requests and emergencies is one of the true tests of a successful 
maintenance program.
    C Preventive maintenance. This is similar to inspection type 
maintenance. Regular checking and servicing of equipment and systems is 
done as required by service information. Preventive maintenance of 
mechanical systems, building exteriors, elevators, and heating and 
cooling systems in projects require specially trained personnel. The 
project manager should establish biweekly or monthly schedules in which 
the routine oiling, adjusting, replacing of filters, and the like is 
done based on manufacturer's manuals and specifications.
    D Long-term maintenance and replacement (curable depreciation). 
These are major expense items which normally do not occur on an annual 
basis and cannot be afforded from an annual budget income. These 
expenses include items such as repaving the parking lot or repainting an 
entire building or project; replacement of furnishings and equipment, 
including such items as stoves, refrigerators, carpets, water heaters, 
furnaces, etc., whenever such replacements are beyond the capacity of 
the project to pay out of the normal operating budget. The borrower may 
request permission to use reserve funds to pay for these expenses when 
they occur. However, use of funds out of the reserve account must be 
preapproved by FmHA or its successor agency under Public Law 103-354.
    E Inspection maintenance. These are maintenance inspections 
performed periodically to discover problems before crisis situations 
develop. The following inspections of each apartment should be made at 
appropriate times:
    1 Move-in inspection. Before move-in occurs, the management and the 
applicant accepted for occupancy should together inspect the unit to be 
occupied and agree upon any needed repairs. A written inspection report 
shall be prepared and a copy retained in the tenant's or member's file. 
Any of the identified deficiencies not corrected prior to occupancy 
should be noted on the lease or occupancy agreement or inspection move-
in report and signed by the tenant or member and borrower's or 
cooperative's representative.
    2 Move-out inspection. An inspection should be scheduled with the 
tenant or member when the management becomes aware that the tenant or 
member is moving out or has vacated the unit. Whenever possible, the 
inspection should be performed after the furniture has been moved out 
and before any portion of the security deposit or membership fee is 
returned to the tenant or member. Any repairs or costs to be charged to 
the tenant or member will be according to the terms of the lease or 
occupancy agreement, local law, and regulations governing security 
deposits or membership fees in paragraph VIII H of this exhibit.
    3 Periodic inspection. An inspection of this type should be made at 
least annually. The borrower should make provisions in the lease or 
occupancy agreement for periodic inspection of the units as a part of a 
preventive maintenance program.
    XI Rent or Occupancy Charge and/or Utility Allowance Changes: It may 
be necessary as operating costs and/or revenues fluctuate to consider a 
change of rental or occupancy charge rates and/or utility allowance to 
keep the project viable. Before any change of rates or utility 
allowances may occur, prior written consent of FmHA or its successor 
agency under Public Law 103-354 is required. The procedure to request 
and implement a rental or occupancy charge and/or utility allowance 
change is specifically covered in exhibit C of this subpart.
    XII Borrower Project Budgets:
    A Budget development and preparation. Borrowers are responsible for 
developing project budgets using past actual experiences in developing 
realistic forecasts of projected project operations. The budgets must 
reflect realistic income sources, uses and amounts of funds, and allow 
realistic vacancy and contingency factors. Generated funds must be 
sufficient to pay the forecasted operating costs and authorized 
expenditures of the project including reserves and return on investment, 
leaving adequate cash on hand as

[[Page 258]]

a normal course of business. When the income from typical project 
operations (operational income) is not sufficient to meet the normal 
project cash requirements, the borrower is responsible for reducing 
expenditures, seeking FmHA or its successor agency under Public Law 103-
354 consent for authorized withdrawals from the reserve account, and/or 
providing other funds (nonoperational funds) to meet project budget 
requirements.
    1 Budgets will be prepared according to the instructions contained 
in Form FmHA or its successor agency under Public Law 103-354 1930-7.
    2 Borrowers are required to develop a project budget annually.
    3 Budgets will cover a 12-month period selected by the borrower that 
is to be the project fiscal year of operation.
    4 Separate budgets will be developed for each project when the 
borrower owns more than one MFH project.
    5 The priority order of planned and actual budget expenditures will 
be:
    a Critical operating and maintenance expenses.
    b FmHA or its successor agency under Public Law 103-354 debt 
service.
    c Reserve account requirements.
    d Other authorized expenditures.
    e Return on owner's investment.
    6 Project funds may not be used for borrower organizational 
expenses, except in the case of a cooperative or a nonprofit 
organization.
    7 When tenants pay their own utilities, an updated or current 
exhibit A-6 to subpart E of part 1944 of this chapter is to accompany 
each budget submitted to FmHA or its successor agency under Public Law 
103-354 for approval with justification to either retain or change the 
utility allowance(s).
    8 When planned expenses appear to be excessive (such as when 
expenses at any subtotal level on the budget exceed 5 percent of that 
shown for typical costs for the area) for the area based on current cost 
data, the FmHA or its successor agency under Public Law 103-354 budget 
approval official may require justification prior to any approval 
action. Such justifications may include evidence that the cost is in 
line with what others charge for the same or similar services (i.e., 
cost estimates from others, summaries of rental housing revenues and 
expenditures from Agency or third-party sources, etc.). Such evidence 
may also be verified by the Agency at its option. When differences 
cannot be mutually resolved, the request for budget approval may be 
denied and the borrower or the borrower's designated representative will 
be advised of any applicable appeal rights in accordance with subpart B 
of part 1900 of this chapter. Any unapproved expenditure actually paid 
which is clearly in excess of a fair and equitable amount may be 
required to be repaid to the project from any authorized return on 
owner's investment or from nonproject sources, such that tenant rents 
will not be increased.
    B Return on investments authorized by borrower's RRH loan agreement/
resolution.
    1 Limited profit borrowers may take the return authorized for the 
project's current budget year without further FmHA or its successor 
agency under Public Law 103-354 approval under the following conditions. 
(Note: This does not require delaying taking a return on owner's 
investment pending submission, review and/or action on any required 
audit by Agency officials):
    a Payment may be only once a year based on the project's financial 
condition as of the end of the project fiscal year. Borrowers are 
encouraged to draw the return on investment in the days or weeks 
immediately following the close of the fiscal year. The return on 
owner's investment must be taken within 9 months of the last day earned, 
except when the circumstances described in paragraph XII B 2 a of this 
exhibit are applicable.
    b Payment must have been approved as part of the borrower's annual 
budget on Form FmHA or its successor agency under Public Law 103-354 
1930-7.
    c The project must produce income at approved monthly rental rates 
during that year, which is used to pay for the project expenses in 
accordance with the approved budget and, when appropriate, an approved 
servicing plan.
    d The balance in the reserve account must be on schedule less any 
authorized withdrawals not requiring immediate redeposit. The amount of 
reduction of the annual reserve requirement approved as part of a 
servicing plan will be considered like an authorized withdrawal not 
requiring redeposit.
    e Payment of the return may not produce a negative ending year 
unrestricted cash balance on Form FmHA or its successor agency under 
Public Law 103-354 1930-7.
    2 If income is not adequate in any given fiscal year to cover 
payment of the return to owner, FmHA or its successor agency under 
Public Law 103-354 may authorize a well-documented request that the 
return be paid, provided:
    a The return can be paid from excess funds available at the end of 
the following fiscal year of operation, as long as it does not result in 
a rent increase and the reserve account is current less authorized 
withdrawals. (Noncash losses of the borrower entity do not qualify to be 
recouped in following years.) This option is authorized only for the 
year immediately following the year in which the return was not paid. 
The prior year's return on owner's investment may be taken first, and 
any residual left to apply to the current year's return on owner's 
investment at the borrower's option.

[[Page 259]]

    b Release of reserve funds at the end of the current budget year 
with Servicing Official approval, if the principles set out in 
paragraphs XII B 1 b, c, and d of this exhibit are met, and further 
provided that:
    (1) The reserve account will not be reduced below the amount 
required to be accumulated by that time considering any previously 
authorized withdrawals or adjustments; and,
    (2) During the next 12 months, the amount in the reserve account 
will not likely fall below that required to be accumulated by the end of 
such 12-month period.
    (3) This option is authorized only for the year immediately 
following the year in which the return was not paid. This does not apply 
to the return on investment waived while a special market rent budget is 
in effect.
    3 Borrowers operating under a servicing (workout) plan and/or using 
special servicing market rate rents that call for less than full debt 
service payment to FmHA or its successor agency under Public Law 103-354 
shall forego and cannot recoup the annual return to owner for the budget 
year that such plans or rents are in place.
    4 When the provisions of paragraph XII B 1, 2 of this exhibit are 
not met only because the payment was not earlier approved on Form FmHA 
or its successor agency under Public Law 103-354 1930-7, and the 
conditions are such that approval can now be made, an adjusted form may 
be submitted to seek approval of the return on owner's investment.
    5 Should the return to owner be suspected or discovered as being 
improperly taken, the Agency may initiate appropriate servicing actions, 
including using the authorities set out in subpart N of part 1951 of 
this chapter and/or FmHA or its successor agency under Public Law 103-
354 Instructions 2012-B and/or 1940-M (available at any FmHA or its 
successor agency under Public Law 103-354 office).
    C Advancement (loan) of funds to a RRH project by the owner, member 
of the organization, or agent of the owner.
    1 Prior written approval by the Servicing Office is required. Such 
advances may be authorized when justified by unusual short-term 
conditions. When conditions are not short-term in nature, a servicing 
plan may be developed and advances may be approved in accordance with 
the provisions set out in subpart B of part 1965 of this chapter. 
Justification will be based on the following:
    a A review of the documented circumstances and the project operating 
budget before any funds are advanced (loaned). The financial position of 
the project must not be jeopardized.
    b Funds are not immediately available from any of the following 
sources:
    (1) Reserve funds
    (2) Initial operating capital
    (3) An imminent rent increase
    2 The funds will be applied to ordinary project operating and 
maintenance expenses.
    3 Interest may be charged or paid on the loan from project income; 
however, interest must be reasonable. The proposal may be denied if FmHA 
or its successor agency under Public Law 103-354 financing can be 
provided to resolve the problem in a more cost effective manner.
    4 No lien in connection with the loan will be filed against the 
property securing the FmHA or its successor agency under Public Law 103-
354 loan or against project income. The advance may show as an unsecured 
project liability on financial statements prepared for year-end reports 
until such time as it is authorized to be repaid.
    5 The payback of the advance (loan) may be permitted by the 
Servicing Official provided the terms and conditions were mutually 
agreed to by the borrower and FmHA or its successor agency under Public 
Law 103-354 at the time of the advance and the financial position of the 
project will not be jeopardized. Payback should only be permitted on the 
advance when the FmHA or its successor agency under Public Law 103-354 
debt is current and the reserve requirements are being maintained at the 
authorized levels.
    D Special budget planning.
    1 Budgets must be prepared according to the special servicing 
guidelines of subpart B of part 1965 of this chapter when a project is 
experiencing abnormal vacancy or is otherwise detrimentally impacted by 
economic reversal in the community.
    2 The borrower is responsible for obtaining FmHA or its successor 
agency under Public Law 103-354 approval of budget revisions that 
reflect significant change to approved operating cost levels that occur 
during the budget year. Minor revisions to an approved FmHA or its 
successor agency under Public Law 103-354 budget to reflect changes of 5 
percent or less in any subtotal area of the budget need not be subject 
to FmHA or its successor agency under Public Law 103-354 approval unless 
specifically required as an approval condition. Other minor revisions of 
a few line items may be entered on the current approved budget as 
``pencil'' changes and initialed by the borrower and approved by FmHA or 
its successor agency under Public Law 103-354. Major changes involving 
many budget line items will warrant a new budget being prepared and 
approved by FmHA or its successor agency under Public Law 103-354.
    3 When revisions to approved budgets are required, the Agency action 
should normally be obtained within 30 days. Should action be delayed, 
the borrower or management should notify the Agency of any changes which 
they deem as being essential and in the project's best interest provided 
such changes do not involve the use of reserve funds, a rent

[[Page 260]]

change, or added secured debt, and proceed to meet the needs of the 
project. In such cases, the borrower may request, and the Agency may 
grant, postapproval of the actions when shown to be in the best interest 
of the project.
    XIII Accounting and Reporting Requirements and Financial Management 
Analysis:
    A General. FmHA or its successor agency under Public Law 103-354 
anticipates that RRH, RCH, and LH borrowers will account for all project 
income and expenses through a bookkeeping or accounting system as a 
normal business practice appropriately reflecting the complexity of 
project operations. The degree of sophistication will also reflect such 
factors as the type of borrower; the size, location, and type of project 
and the type of financial management information needed to provide 
adequate guidance and supervision to assure program objectives are being 
met.
    1 Separate accountability. Separate accountability of funds is 
required and may be accomplished by bookkeeping entry for each required 
account for each project owned by the same borrower. The policies set 
out herein are aimed at facilitating efficient accounting of services by 
one borrower. Commingling of the funds of two or more different 
borrowers is prohibited to guard against the failure of one borrower 
threatening the financial resources of other borrowers (i.e., ensuring 
that a bankruptcy does not result in freezing bank accounts of several 
borrowers due to the failure of one borrower to fulfill its 
responsibilities).
    a Multiple projects owned by one borrower.
    (1) The principle of separate accountability permits a borrower's 
approved accounting system to combine project funds in one or more bank 
accounts for two or more projects owned by the same borrower. The 
principle is met as long as the accounting system segregates and tracks 
each project's funds separately. This means for example, that a Housing 
Authority, or any other borrower owning two or more projects, can 
maintain one bank account for:
    (i) All project accounts, or
    (ii) The same type of account, such as general operating account or 
tax and insurance account, for two or more projects.
    (2) When the borrower seeks approval of its accounting and funds 
tracking system according to Sec.  1930.122(a)(2) of this subpart, it 
must demonstrate to FmHA or its successor agency under Public Law 103-
354 that the funds tracking system will segregate and maintain separate 
recordkeeping accountability for separate projects. Such demonstration 
must include a certification issued by a Certified Public Accountant 
(CPA) stating the system will function to meet this principle of 
separate accountability.
    b Multiple projects owned by multiple borrowers. When a management 
agent is handling funds for multiple borrowers, the principles of 
separate accountability within a bank account does not extend across 
multiple borrowers, thus a separate general operating bank account is 
required for each separate borrower.
    c Central funds collection and disbursement system. When a 
management agent is handling multiple bank accounts for multiple 
borrowers, a central funds collection and disbursement accounting system 
may be maintained. This would permit systems under which a management 
agent could track funds going into and out of the bank accounts of more 
than one borrower. This practice would facilitate the hiring and paying 
of firms providing services to multiple borrowers. A central funds 
collection and disbursement accounting system would permit billings to 
be prorated between projects and permit funds to be withdrawn from many 
bank accounts to facilitate payment by one check to a firm providing 
services to multiple borrowers.
    d Prorating. The accounting system and/or management plan must 
document how funds are prorated for revenue and expenses which are not 
clearly identifiable as being associated with a particular project 
(e.g., how interest earned on a general operating account or reserve 
account serving two or more projects owned by a single borrower will be 
prorated between projects, etc.) Where this documentation is not present 
for some unusual reason, and the Agency and the borrower become involved 
in a dispute over this issue which cannot be mutually resolved, the 
Agency will consider proration by the number of units in the respective 
projects to be an appropriate guide for prorating the funds involved.
    e Tenant security deposit concerns. When tenant security deposits 
are being accounted for, the provisions of state and local laws must be 
met. This may dictate that such accounts be held in a separate bank 
account or otherwise separately identified and may require such funds be 
held in trust for the tenant. The manner in which tenant security 
deposits must be kept must also be documented in the accounting system 
and/or management plan. Where this documentation is not provided for 
some unusual reason, resolution of any disputes must be done according 
to State and local law.
    2 Borrowers with loan agreements or resolutions. Borrowers with loan 
agreements or resolutions are subject to the following conditions:
    a All RRH, RCH, and LH projects with loan agreements or resolutions 
approved on or after October 27, 1980, are required to comply with the 
provisions of paragraph XIII of this exhibit.

[[Page 261]]

    b All RRH, RCH, and LH projects with loan agreements or resolutions 
approved prior to October 27, 1980, will be guided by the recordkeeping 
and reporting requirements of their respective loan agreement or 
resolution.
    (1) They are encouraged, however, to adopt the provisions of this 
paragraph by amending their existing loan agreement or resolution.
    (2) The State Director may require adoption of these provisions when 
deemed necessary as a loan servicing action.
    c Any amendment to an existing loan agreement, or resolution, 
requires concurrence of all parties and written consent of the Servicing 
Office staff who may, when deemed necessary, obtain advice from the 
State Director or the OGC prior to enactment of the amendment.
    3 Individual LH Borrowers. Individual farm borrowers with nonrental 
LH units will be considered in general compliance with this paragraph by 
virtue of completing the recordkeeping and reporting requirements of 
their farm and home planning with FmHA or its successor agency under 
Public Law 103-354 as outlined in subpart D of part 1944 of this 
chapter.
    4 Borrowers without loan agreements or resolutions. Borrowers 
without loan agreements or resolutions are required to maintain 
information in sufficient detail to provide the necessary assurance that 
program objectives are being met. As necessary to protect the integrity 
of the program, the State Director may require the borrower to establish 
a system capable of accounting for project operations and reporting.
    B Accounting System. A bookkeeping and accounting system provides 
the financial information needed to effectively plan, control, and 
evaluate project activity, whether required by FmHA or its successor 
agency under Public Law 103-354 or not. The type of system should be 
determined prior to loan closing, but may be revised with FmHA or its 
successor agency under Public Law 103-354 approval to meet program 
objectives. The Agency may also prescribe the system to be used. Form 
FmHA or its successor agency under Public Law 103-354 1930-5, 
``Bookkeeping System--Small Borrower,'' can be adapted to the 
bookkeeping needs of small MFH borrowers. Bookkeeping for MFH operations 
may be maintained using a cash or accrual method of accounting.
    1 Type of borrower accounts. As used in this paragraph, the term 
account is used interchangeably to mean either a ledger (or bookkeeping 
account) or an actual banking account, or an actual securities account 
provided any securities account meets the conditions set out herein. 
Depending upon the complexity of the accounting system being used, these 
accounts may be further subdivided into subsidiary ledgers or accounts 
to assist the borrower in providing the information needed for project 
financial analysis or reporting requirements. Regardless of the number 
or types of accounts established, or whether a bookkeeping and 
accounting system is required, the borrower must meet the following:
    a All project funds shall be held only in domestic bank accounts 
insured by an agency of the Federal Government, or backed by collateral 
provided by the bank, or held in securities meeting the conditions set 
out herein.
    b All funds in any account shall be used only for authorized 
purposes as described in their loan agreement or resolution and this 
exhibit.
    c All funds received and held in any account, except the tenant 
security deposit, membership fee, and management reserve (patronage 
capital), shall be held in trust by the borrower for the loan obligation 
until used and serve as security for the FmHA or its successor agency 
under Public Law 103-354 loan or grant.
    d All project funds will be accounted for by adequate and clear 
accounting methods or practices that otherwise maintain proprietary 
identity of said funds for each borrower.
    e Each borrower will maintain at least one demand deposit or 
checking account. However, it is not necessary for each bookkeeping 
account within one project to be maintained as a checking account.
    f In no case shall project fund accounts be pledged as collateral 
for non-FmHA or its successor agency under Public Law 103-354 debts.
    2 Accounts. All RRH, RCH, and LH borrowers will maintain, as a 
minimum, the accounts required by their loan agreement or resolution. 
The following accounts are standard for all RRH and RCH loans approved 
after October 27, 1980, and for those who have amended their previous 
loan agreements or resolutions to adopt these accounts, or those 
required by a servicing plan. The following listing of accounts also 
identifies the order of funding of each of the listed accounts through 
available project revenues each month:
    a General operating account. This account records all project income 
and disbursements exclusive of tenant security deposits. Excess project 
cash held in this account may be combined with other project funds 
described in this paragraph in temporary (immediate call) interest 
bearing accounts when separate bookkeeping records are maintained for 
the individual project accounts. This account may be further subdivided 
as folllows:
    (1) Initial operating capital.
    (i) The initial operating capital must be in the form of cash as set 
forth in Sec.  1944.211(a)(6) of subpart E of part 1944 of this chapter.

[[Page 262]]

    (ii) The borrower will have deposited the required initial operating 
cash into the general operating account by the time of the FmHA or its 
successor agency under Public Law 103-354 loan closing or when interim 
financing funds are obtained, whichever occurs first. These funds will 
blend with other revenue that accrues to the account to cover budgeted 
expenditures including payment of return to owner.
    (iii) After 2, but before 5 full (12 month) borrower fiscal years of 
project operation, the borrower may request (in writing) the State 
Director's authorization to make a one-time withdrawal of the initial 
operating capital, or a part of it. The one-time withdrawal can never 
exceed the initial operating capital as described in the loan agreement 
or loan resolution. The withdrawal can be approved provided that:
    (A) The project has achieved at least a 95 percent occupancy level 
at time of the withdrawal request or achieved a 95 percent occupancy 
level for a 12-month period preceding the request and show strong 
prospects of retaining at least a 95 percent occupancy level in the 
immediate future.
    (B) The withdrawal will not affect the financial integrity of the 
project. After withdrawal, 10 percent of projected project expenses 
should remain in the general operating account in excess of current 
liabilities then outstanding. The reserve account must be on schedule 
less authorized withdrawals. The borrower must demonstrate that all 
prudent maintenance is being planned and performed, and payment of 
necessary project expenses are not being deferred.
    (C) The State Director determines that the withdrawal will not 
necessitate a rent increase during the year of withdrawal or during the 
next year of operation, except that rent increases needed because of 
normal increases of operation and maintenance expenses unrelated to the 
withdrawal may be approved; and
    (D) The State Director has reviewed and approved any required 
borrower reports before the initial operating capital is withdrawn. 
Promptness is expected but actual withdrawal of funds could occur in the 
sixth year.
    (2) Deposits. All income and revenue from the housing project shall, 
upon receipt, be immediately deposited in the general operating account. 
This will include rent or occupancy charge receipts, housing subsidy 
payments (including HUD section 8 and FmHA or its successor agency under 
Public Law 103-354 RA payments), laundry revenue, or any other project 
income including interest earned on project accounts. The borrower may 
also deposit other funds at any time which are to be used for purposes 
authorized by this section, including transfers from the reserve 
account.
    (3) Disbursements. The borrower shall pay or fund the actual, 
reasonable, and necessary monthly project expenses out of the general 
operating account. Current expenses may include the initial purchase and 
installation of furnishings and equipment with any other funds deposited 
in the general operating account which are not proceeds of the loan or 
income or revenue from the project. (However, nonprofit borrowers are 
permitted to use loan funds specified for initial operating capital 
purposes as authorized in subparts D and E of part 1944 of this 
chapter.) Other authorized disbursements are FmHA or its successor 
agency under Public Law 103-354 approved installments of debt service; 
real estate tax and insurance escrow as provided in paragraph XIII B 2 b 
of this exhibit; reserve, and return on investment as provided in 
paragraph XIII B 2 c of this exhibit. In RRH accounts, any balance 
remaining in a general operating account, except as authorized, above, 
may be retained in this account or transferred to the reserve account. 
In RCH accounts, any balance in excess of three months of average 
operating expenses remaining in a general operating account will be 
transferred into the cooperative's patronage capital account at the end 
of the fiscal year.
    (4) Unauthorized disbursements. Except for cooperatives, late fees 
charged the borrower according to subpart K of part 1951 of this 
chapter, may not be paid from project income. When late fees are 
deducted by FmHA or its successor agency under Public Law 103-354 from 
payments made from project income, the project general operating account 
must be reimbursed from nonproject income of the owner or management 
agent or deducted from the owner's return on investment.
    b Real estate tax and insurance escrow account. According to the 
borrower's management plan, project funds for periodic payment(s) of 
real estate taxes and real property insurance may be deposited in a real 
estate tax and insurance escrow account or held in the general operating 
account as cash on hand. The escrow account may be an interest bearing 
account. Deposits to the account should be in monthly increments of one-
twelfth of the annual anticipated real estate tax and insurance 
payments. Any interest earned shall accrue to the project as project 
operational cash income.
    c. Reserve account. The reserve account is a required account 
subject to the requirements set out in this paragraph. The borrower will 
initiate monthly deposits in this project account, preferably an 
interest bearing account, starting the same month the first loan payment 
is due FmHA or its successor agency under Public Law 103-354. As 
projects age, the required reserve account level may be adjusted to meet 
anticipated ``life-cycle''

[[Page 263]]

needs, including equipment and facility replacement costs, by amending 
the loan agreement/resolution. All RRH, RCH, and LH borrowers operating 
projects (i.e., all LH borrowers exclusive of those on-farm type LH 
borrowers) are required to establish a reserve account. Effective as of 
July 26, 1994, reserve funds will be required to be placed in a 
supervised account. The provisions of subpart A of part 1902 of this 
chapter apply. Reserve funds on deposit just prior to this date in 
instruments which are subject to monetary penalties for early withdrawal 
may be temporarily held for the time needed to avoid such penalties.
    (1) Monthly installments. Immediately after paying each installment 
for the orderly retirement of the FmHA or its successor agency under 
Public Law 103-354 loan, as provided in the borrower's promissory note, 
required reserve installments shall be transferred to the Reserve 
Account at least at the monthly rate stipulated by the borrower's loan 
agreement or resolution starting with the date the first payment is due 
to the Agency. Monthly transfers will continue until the account reaches 
the total amount specified in the loan agreement or resolution. Monthly 
transfers shall be resumed the month following withdrawals that decrease 
the reserve account balance below its required level until it is 
restored to the specified total minimum sum.
    (2) Reserve account principles. Reserve account funds are governed 
by the following principles:
    (i) Primary use. The reserve account is primarily used to meet the 
major capital expense needs of a project. It is expected that the 
reserve account should rarely have to be used to meet any noncapital 
expense need of a project; however, the Servicing Official may approve 
such uses when warranted in unusual circumstances (e.g., a cash income 
shortfall, using the notice of approval at exhibit B-9 of this subpart).
    (ii) Investment vehicles and institutions. Reserve account funds not 
immediately needed to pay for expenses for authorized purposes may be 
held as set out herein. Reserve account funds may be held in the form of 
a checking, savings, negotiable order of withdrawal, or similar account 
at a Federally insured domestic institution such as a bank, savings and 
loan, or credit union. Reserve account funds may be held in the form of 
readily marketable obligations of the United States Treasury Department 
(e.g., U.S. Treasury bonds, U.S. Savings bonds, zero coupon bonds, etc.) 
at a Federally insured domestic institution or at an insured domestic 
institution authorized to sell securities. Reserve account funds may 
also be held in the form of an account (the account may be a tax exempt 
account or a taxable account) established at an insured domestic 
institution authorized to sell securities (the institution may or may 
not charge brokerage fees), provided the accounts so established meet 
the remaining conditions set out herein and are not used in a 
speculative manner.
    (iii) Limitations on investments in securities. Any securities must 
be backed by the United States (U.S.) Government or an Agency of the 
U.S. Government, or be triple A (AAA) rated Government National Mortgage 
Association collateralized tax-emempt bonds or be AAA rated prerefunded 
bonds. Prerefunded bonds are bonds that originally may have been issued 
as general obligation or revenue bonds but are now secured, until the 
call date or maturity, by an ``escrow fund'' consisting entirely of 
direct U.S. Government obligations that are sufficient for paying the 
bondholders.
    (iv) Reporting actual costs of securities. In order to assure that 
required amounts have been paid into the reserve account, the actual 
costs of securities (which in many cases may not be the face value) must 
be shown on the project books. In addition, details of these 
transactions should be disclosed in footnotes to financial information 
provided to the Agency.
    (v) Security sales. When the Agency approves withdrawals from the 
reserve account and the funds are invested in securities, borrowers 
must, to the extent that securities are available, assure that 
securities are sold in an amount which results in proceeds sufficient to 
cover the disbursement.
    (vi) Forecasting security sales. Since the sale or redemption of any 
securities may result in cash proceeds of less than the amount invested, 
borrowers should take steps to minimize the risk of loss from converting 
securities to cash. Needed reserve account withdrawals should be 
forecasted well in advance to permit Agency approval of anticipated 
needs such that security sales can be arranged to be sold in favorable 
market conditions. When sales of securities take place the proceeds will 
normally be held in a reserve fund at a domestic bank, savings and loan, 
credit union, or similar institution insured by an Agency of the Federal 
Government until such time as withdrawals are actually needed for the 
purposes authorized. Should unusual circumstances require the sale of 
securities in unfavorable market conditions the borrower will not be 
required to reimburse the project for any losses incurred.
    (vii) Knowledge required of securities investors. Those investing in 
securities must be knowledgeable of common industry practices prior to 
investing in securities. Knowledge of the various fees that may be 
associated with the purchase and sale of securities and the maintenance 
of security accounts must be considered when making security investments 
(e.g., front end loads or fees, back end loads or fees, maintenance 
fees, etc.). Such fees may be paid by the general operating account or 
by the reserve account. However,

[[Page 264]]

the Agency must give its prior consent before reserve account funds may 
be used.
    (viii) Financial advisor limitations. Project proceeds may not be 
permitted to be used to pay for the services of a financial advisor to 
assist in the selecting of securities for investments, since the 
securities permitted are relatively limited and must meet the 
requirements set out herein. However, normal brokerage fees may be paid 
to secure and sell securities. It is recognized that financial advice 
may also be provided as part of the normal brokerage fee service package 
to consummate the purchase and sale of securities. Separate financial 
advisor services fees, apart from normal brokerage fees, are prohibited, 
however.
    (3) Reserve account tracking. Any deposit and withdrawal from the 
reserve account should be recorded on a withdrawal format for tracking 
and reconciliation of the account similar to that found in exhibit B-10 
of this exhibit.
    (4) Excess reserve. Any amount in the reserve account which exceeds 
the total sum specified in the loan agreement or resolution may be 
transferred to the general operating account for the authorized purposes 
only when it is agreed between the borrower and FmHA or its successor 
agency under Public Law 103-354 to be in excess of the requirement and 
there is a specific need for the excess funds. However, the FmHA or its 
successor agency under Public Law 103-354 Servicing Official may direct 
the excess sum to be retained in the reserve account or applied as an 
extra payment on the loan.
    (5) Reserve account use. Funds in the reserve account may be used 
for purposes in accordance with this paragraph. The borrower will 
request withdrawal of reserve funds in a written or confirmed manner 
before they are needed. Annual budgets are to include realistic routine 
income and expense levels to avoid the need to use the reserve for 
routine expenses (operating shortfalls), not caused by emergencies or 
very unusual servicing situations; but when needed, use of reserve funds 
may be permitted with Agency approval. The Servicing Official will take 
prompt action on a request for reserve withdrawal (normally within 5 
working days of the request) and provide written authorization to the 
borrower for any authorized withdrawal of funds by the use of a letter 
in the form of exhibit B-9 of this subpart (or other similar letter 
containing at least the information shown on exhibit B-9 of this 
subpart) before the borrower actually withdraws any funds. Any 
conditions for approval (e.g., a copy of paid invoices, inspections, 
etc.) will be indicated in the letter. Although the prior consent of the 
Government is required for the use of reserve funds, the Servicing 
Official may post approve the use of reserve funds if they were used for 
authorized purposes and their expenditure would have been approved had a 
request for approval been submitted prior to the withdrawal. The 
borrower must provide documented evidence showing the actual amount and 
use of funds before the post-approval action. Authorized purposes are:
    (i) To meet payments due on the loan obligations in the event the 
amount for debt service is not sufficient for that purpose.
    (ii) To pay cost of repairs or replacements to the housing, 
furnishings or equipment or shortfalls of current expenses. Withdrawal 
for planned authorized purposes should be approved in advance during the 
annual budget approval process.
    (iii) To make improvements to the housing project without creating 
new living units or to retrofit units to make them accessible to the 
physically handicapped.
    (iv) For other purposes desired by the borrower, which in the 
judgement of the Government will promote the loan purposes, strengthen 
the security, or facilitate, improve, or maintain the project and the 
orderly collection of the loan without jeopardizing the loan or 
impairing the adequacy of the security. Reserve funds may also be used 
to facilitate payment of fees associated with the buying or selling of 
securities or maintaining a securities account.
    (v) To pay a return on investment at the end of the borrower's 
project operating year, provided that after such disbursements the 
amount in the reserve account will not be less than that required by the 
loan agreement or resolution to be accumulated by that time (taking into 
consideration the provisions of any approved servicing plan which may be 
authorizing a temporary adjustment to these provisions), minus any 
authorized withdrawals, and provided that the amount in the reserve 
account will likely not fall below that required to be accumulated 
during the next 12 months.
    (A) In the case of borrowers operating on a limited profit basis, to 
pay a return on the borrower's initial investment as identified in the 
loan agreement or resolution.
    (B) In the case of borrowers operating on a full profit basis, to 
pay an annual return as specified in the borrower's loan agreement or 
resolution.
    (6) Exhibit B-10 of this subpart may be used by the borrower and 
FmHA or its successor agency under Public Law 103-354 to record deposits 
and withdrawals in the reserve account and to perform reconciliation of 
the account to determine the current account balance.
    d Management reserve account (patronage capital account). Any funds 
in excess of three months of average operating expenses remaining in the 
general operating account of an RCH project at the end of the fiscal 
year will be transferred and maintained in a lump sum in an interest 
bearing patronage capital account and will be handled according to any

[[Page 265]]

state laws governing patronage capital. That amount will then be equally 
assigned, by bookkeeping entry only, to each member. The patronage 
capital funds will be held by the cooperative in trust for the 
respective member until that member terminates membership in the 
cooperative, provided the member has paid all charges and costs due the 
cooperative. The patronage capital funds will not be used for any other 
purpose.
    e Security deposit or membership fee account (when applicable). Upon 
receipt, all security deposit or membership fee funds collected shall be 
recorded in a bookkeeping account that is kept separate from the project 
bookkeeping accounts. These funds shall be deposited in a separate bank 
account that is kept separate from any project funds and will be handled 
according to any state or local laws governing security deposits. Funds 
in the security or membership fee deposit account shall be used only for 
authorized purposes as intended and represented by the project 
management plan. They shall be held by the borrower or borrower's 
management agent in trust for the respective tenants or members until so 
used. Any amount of the security deposit account which is retained by 
the borrower as a result of lease or occupancy agreement violations 
shall be transferred to the general operating account and treated as 
income of the housing.
    (1) The owner will follow all State and local requirements governing 
the handling and disposition of security or membership fee deposits.
    (2) In no case will interest earned on security or membership fee 
deposits accrue to project management or the owner of a rental project. 
Any interest earned but not returned to the tenants, or in the case of a 
cooperative, interest earned on membership fees but not returned to 
members will, accrue to the project's general operating account for 
disposition as outlined in the management plan.
    C Borrower reporting requirements. It is the objective of FmHA or 
its successor agency under Public Law 103-354 that borrowers will 
maintain accounts and records necessary to conduct their operation 
successfully and from which they may accurately report operational 
results to FmHA or its successor agency under Public Law 103-354 for 
review, and otherwise comply with the terms of their loan agreements 
with the Agency. Certain reports are necessary to verify compliance with 
FmHA or its successor agency under Public Law 103-354 requirements and 
to aid the borrower in carrying out the objectives of the loan. Some 
reports must be submitted with the FmHA or its successor agency under 
Public Law 103-354 payments and others submitted to FmHA or its 
successor agency under Public Law 103-354 either monthly, quarterly, or 
annually. Exhibits B-6, B-7, and B-8 of this subpart are to be used as a 
guide for determining when reports are due and the number of copies 
required. Borrower accounts and records will be kept or made available 
in a location within reasonable access for inspection, review and 
copying by representatives of FmHA or its successor agency under Public 
Law 103-354 or other agencies of the U.S. Department of Agriculture 
authorized by the Department.
    1 Accounting methods and records.
    a Method of accounting and financial statements. Borrowers may 
choose a cash or accrual method of accounting, bookkeeping and budget 
preparation as described in their project management plan. Balance 
sheets or statements of financial condition may be prepared reflecting 
the same accounting method, except that the accrual method of reporting 
financial condition will be used where the borrower is required to 
submit an annual audit.
    b Approval requirement. Before loan closing or start of 
construction, whichever is first, each borrower shall incorporate a 
description of its method of accounting, bookkeeping, budget 
preparation, and reporting of financial condition and, when applicable, 
plans for auditing in the project management plan that must be approved 
by FmHA or its successor agency under Public Law 103-354.
    c Records. Form FmHA or its successor agency under Public Law 103-
354 1930-5 may be used by small organizations as a method of recording 
and maintaining accounting transactions. Automated systems may be used 
if they meet the conditions of paragraph XVI of this exhibit.
    d Record retention. Each borrower shall retain all financial 
records, books, and supporting material for at least 3 years after the 
issuance of the audit reports and financial statements. Upon request, 
this material will be made available to FmHA or its successor agency 
under Public Law 103-354, the Office of Inspector General (OIG), the 
Comptroller General, or to their representatives.
    2 Management reports and review processes. The objective of 
management reports and review processes is to furnish the management and 
FmHA or its successor agency under Public Law 103-354 with a means of 
evaluating prior decisions and to serve as a basis for planning future 
operations and financial conditions. Timely reports and their review 
furnish necessary information to make sound management decisions. All 
reports will relate only to the FmHA or its successor agency under 
Public Law 103-354 financed project and borrower entity. Separate 
reports will be prepared and submitted for each project owned by the 
same borrower. Forms necessary in making the required reports may be 
requested from FmHA or its successor agency under Public Law 103-354. 
The various review processes described in this

[[Page 266]]

paragraph are illustrated at paragraph XIII C 3 of this exhibit.
    a Annual budget and utility allowance.
    (1) Objective. It is the objective of FmHA or its successor agency 
under Public Law 103-354 that project budgets and/or utility allowances 
be prepared, reviewed, and approved in such manner and timing that the 
approved budget and/or utility allowance, including any authorized 
changes to same, become effective on the beginning of a fiscal year of 
project operation.
    (2) Documents.
    (i) The annual project budget will be prepared on Form FmHA or its 
successor agency under Public Law 103-354 1930-7 by the borrower or its 
agent following the instructions on the form. It will reflect budget 
planning for a 12 month fiscal year. Figures in the ``actual'' column 
will reflect at least 9 months of actual fiscal year activity and no 
more than 3 months of estimated activity for the balance of the same 
fiscal year based on recent actual experience.
    (ii) The housing allowance for utilities and other public services 
will be prepared on exhibit A-6 of subpart E of part 1944 of this 
chapter. The exhibit A-6 will be prepared by the borrower or its agent 
following instructions attached to exhibit A-6 of subpart E of part 1944 
of this chapter.
    (3) Supporting data. Any data, justification or other documentation 
required by the instructions for preparation of Form FmHA or its 
successor agency under Public Law 103-354 1930-7 and exhibit A-6 of 
subpart E of part 1944 of this chapter, or otherwise required by the 
Servicing Official on an individual case basis, shall be attached to the 
respective document when submitted to the Servicing Office.
    (4) Due date. The borrower can submit the necessary documents as 
soon as 9 months of current fiscal year actuals are available, but in 
sufficient time to meet the objective stated at C 2 a (1) of this 
paragraph. The Servicing Official needs 15 to 30 days to review project 
budgets and utility allowances when no changes of rents, occupancy 
charges, or utility allowances are needed. When such changes are needed, 
the borrower needs to submit documents to allow sufficient time for 
review and proper notice of change to tenants or members.
    (5) FmHA or its successor agency under Public Law 103-354 review. 
Form FmHA or its successor agency under Public Law 103-354 1930-7 and 
exhibit A-6 of subpart E of part 1944 of this chapter and any attachment 
will be reviewed by the Servicing Office as part of the rental or 
occupancy charge/utility allowance change review and/or annual review 
process.
    b Rental or occupancy charge budget and/or utility allowance change.
    (1) Objective. It is the objective of FmHA or its successor agency 
under Public Law 103-354 that changes to project rental or occupancy 
charges and/or utility allowances be incorporated into the annual budget 
review and planning process in such manner and timing that authorized 
changes become effective at the beginning of a fiscal year of project 
operation.
    (2) Documents. When a rental or occupancy charge and/or utility 
allowance change is proposed, the borrower or its agent will prepare and 
submit Form FmHA or its successor agency under Public Law 103-354 1930-7 
and exhibit A-6 of subpart E of part 1944 of this chapter and any 
supporting attachments following the instructions for either document.
    (3) Standards and timing.
    (i) The policies and procedures governing rental or occupancy charge 
and/or utility allowance change are contained in exhibit C of this 
subpart, (available in the ``Borrower Handbook'' or any FmHA or its 
successor agency under Public Law 103-354 office).
    (ii) To meet the projected effective date of change, the necessary 
documents need to be received by the Servicing Official at least 75 days 
ahead to allow FmHA or its successor agency under Public Law 103-354 
review and allow for a 60-day notice to tenants or members of an 
impending change. The ``actual'' column of Form FmHA or its successor 
agency under Public Law 103-354 1930-7 shall contain actual data for the 
fiscal year to date plus the projection of expected data for the 
remainder of the fiscal year. This projection should cover a period not 
exceeding 90 days. The same supporting data standards of paragraph XIII 
C 2 a (3) of this exhibit will apply.
    (iii) Should the borrower need to request a rental or occupancy 
charge and/or utility allowance change at some time other than described 
at paragraph XIII C 2 b(3)(ii) of this exhibit (e.g., mid-fiscal year), 
the Form FmHA or its successor agency under Public Law 103-354 1930-7 
shall reflect the project's financial needs for the next 12 months of 
operation and the ``actual'' column shall reflect the most recent 12 
months of actual data. The previous fiscal year's audit report, or Form 
FmHA or its successor agency under Public Law 103-354 1930-8, as 
appropriate, shall be submitted with the change request if it was not 
previously submitted to the Servicing Office.
    (4) FmHA or its successor agency under Public Law 103-354 review. 
Exhibit C of this subpart shall govern FmHA or its successor agency 
under Public Law 103-354 review of the borrower's request for rental or 
occupancy charge and/or utility allowance change.
    c Quarterly report.
    (1) Objective. The objective of FmHA or its successor agency under 
Public Law 103-354 is for quarterly reports to provide a monitoring 
means for borrowers and FmHA or its successor agency under Public Law 
103-354 to mutually check a borrower's progress in

[[Page 267]]

achieving program objectives and when applicable, meeting servicing 
goals. The Servicing Official may require monthly reports rather than 
quarterly reports when warranted in unusual situations.
    (2) Document. Form FmHA or its successor agency under Public Law 
103-354 1930-7 will be used by borrowers to prepare the quarterly 
report.
    (3) Standards.
    (i) For quarterly reports, Form FmHA or its successor agency under 
Public Law 103-354 1930-7 will be completed following the instructions 
on the form for preparation of a quarterly report. The quarterly report 
shall be required upon commencement of any of the following situations:
    (A) Start-up of initial occupancy after completion of new 
construction or substantial rehabilitation.
    (B) Reamortization, transfer of an existing project loan or a 100-
percent membership change.
    (C) Failure to make a scheduled loan payment, failure to maintain 
required transfers to the reserve account, or failure to maintain 
reserve accounts at authorized current levels.
    (ii) For monthly reports, Form FmHA or its successor agency under 
Public Law 103-354 1930-7 will be completed following the instructions 
on the form for preparing a monthly report. The monthly report may be 
invoked:
    (A) When determined essential by the Servicing Official as part of a 
servicing plan made in accordance with exhibit F of subpart B of part 
1965 of this chapter (available in any FmHA or its successor agency 
under Public Law 103-354 office).
    (B) When there are factors such as apparent violations of policy or 
reporting practices, audit findings, sudden increases of vacancy and/or 
accounts payable or receivables, or other evidence of weak financial 
condition.
    (4) Frequency and discontinuance of quarterly and monthly reports.
    (i) Reports shall be prepared and submitted at least through the 
first year of operation for any situation described in paragraph XIII C 
2 c (3) of this exhibit and each quarter or month thereafter for new or 
existing projects until discontinuance is authorized by the Servicing 
Official. The Servicing Official will evaluate the following in reaching 
a decision to discontinue:
    (A) The project has been operated and maintained in a satisfactory 
manner during the most recent 6 months of the required reporting period.
    (B) An adequate accounting system is functioning properly, is kept 
current, and the most recent required annual financial reports are 
complete and have been submitted to the Servicing Office.
    (C) Project loan payments to FmHA or its successor agency under 
Public Law 103-354 are on schedule.
    (D) The project reserve account is ahead or on schedule, allowing 
for authorized expenditures or authorized reduction in funding as set 
forth in an approved servicing plan or budget.
    (E) The annual review has been completed by the Servicing Office and 
the annual audit, or verification of review when appropriate, has been 
found acceptable.
    (F) The Servicing Official has inspected the project, reviewed 
project operations, and found them acceptable. If a determination is 
made to discontinue, a letter shall be sent to the borrower or its agent 
with a copy sent to the State Director.
    (ii) The reporting and audit requirements of paragraphs XIII C 2 
c(4)(i) (B) and (E) do not apply when the most recent 6 continuous 
months of successful operation occur before the first audit and/or 
annual review is due.
    (5) Due date. Quarterly (or monthly) reports shall be due in the 
FmHA or its successor agency under Public Law 103-354 Servicing Office 
by the 20th day of the month immediately following the close of the 
respective reporting period.
    (6) FmHA or its successor agency under Public Law 103-354 review.
    (i) The Servicing Official will review the reports for year-to-date 
status of project operations. When reports reveal actual data that 
exceeds acceptable tolerance from a forecasted budget Subtotal item, or 
vacancies and accounts receivable and/or payable are increasing, the 
Servicing Official will initiate verbal and/or written dialogue with the 
borrower for further resolution of problems or to otherwise achieve 
acceptable progress.
    (ii) The Servicing Official will complete the FmHA or its successor 
agency under Public Law 103-354 review and forward the borrower's report 
and any related documentation to the State Director by the 30th day of 
the month following close of the reporting period.
    (iii) If the borrower fails to submit its report by the due date, 
this fact will be reported to the State Director by the 30th day of the 
month following the close of the reporting period; otherwise, the 
Servicing Office will complete its review of a submitted report no later 
than 10 calendar days following receipt of the borrower's report.
    d Annual audit reports and verifications of review.
    (1) Documents and general standards.
    (i) Annual audit report. An audit report will be in the format as 
prepared by a CPA or Licensed Public Accountant (LPA), provided the LPA 
was licensed on or before December 31, 1970.

[[Page 268]]

    (A) All audits are to be performed in accordance with generally 
accepted government auditing standards or GAGAS, as set forth in 
``Government Auditing Standards'' (1988 Revision), established by the 
Comptroller General of the United States, and any subsequent revisions 
(this publication is commonly referred to as the ``Yellow Book'' or 
``Government Accounting Office Standards''). In addition, the audits are 
also to be performed in accordance with applicable portions of various 
Office of Management and Budget (OMB) Circulars, Departmental 
Regulations, parts 3015 and 3016 of chapter XXX of title 7, and the FmHA 
or its successor agency under Public Law 103-354 Audit Program as 
specified in separate sections of this subpart.
    (B) An audit report is required for any project with 25 or more 
units unless the State Director or Servicing Official determines that a 
project with 24 or fewer units requires an audit for reasons of good 
cause. Such reasons include, but are not limited to, situations where 
project records are incomplete or inaccurate, or it appears that the 
borrower has not adequately accounted for project funds, or where the 
borrower's operation consists of multiple projects where each is 24 or 
fewer units (with subsidy reports prepared for each project). (Note: The 
State Director or Servicing Official may require that the accounts of 
RHS borrowers be audited if the loan exceeds the 2-year repayment term.)
    (C) The project audit report should cover the borrower entity and 
the expense for preparation of the audit report may include the 
auditor's preparation of any IRS required borrower entity reports (i.e., 
Schedule K-1 (IRS Form 1065), ``Partner's Share of Income, Credits, 
Deductions, etc.'').
    (D) The CPA or LPA auditor who prepares the audit report may not be 
an individual or organization that is associated with the borrower in 
any manner, other than the performance of the audit review and 
preparation of the project audit report and required IRS reports, that 
creates an identity of interest or possible conflict of interest (as 
described in paragraph V B of this exhibit. For example, the CPA or LPA 
auditor may not be an employee of the borrower or an employee of any 
officer of the organization, nor be an employee of any member, 
stockholder, partner, principal, or have any ownership or other interest 
in the borrower organization.
    (E) The State Director or Servicing Official may authorize the 
initial audit report to cover a period up to 18 months for new projects 
whose first operating year does not exceed 6 months.
    (F) The State Director may also make an exception to the CPA or LPA 
audit requirement for not more than one successive year in a specific 
case providing: the borrower submits a written request; the FmHA or its 
successor agency under Public Law 103-354 approved budget for the 
project includes a typical and reasonable fee for the audit but the 
negotiated cost of an audit would increase the monthly per unit rental 
rate by more than $4.00; and the required reports, including a CPA or 
LPA prepared audit, were properly submitted for the prior year's project 
operations.
    (ii) Verification of review. Form FmHA or its successor agency under 
Public Law 103-354 1930-8 will be prepared by a competent person 
qualified by education and/or experience who has no identity of interest 
or possible conflict of interest with the borrower or its principals. 
However, in the case of a nonprofit institution, the verification of 
review may be made by a committee of the membership but may not include 
any officer, director, or employee of the borrower.
    (A) Form FmHA or its successor agency under Public Law 103-354 1930-
8 will be used for the verification of review of project accounts and 
the review verifier will also review the actual data on Form FmHA or its 
successor agency under Public Law 103-354 1930-7 for projects with 24 or 
fewer units unless the requirements of paragraph XIII C 2 d(1)(i)(A) of 
this exhibit are invoked by the State Director or Servicing Official.
    (B) The State Director or Servicing Official may authorize the 
initial verification of review to cover a period up to 18 months for a 
new project whose first operating year was less than 6 months.
    (iii) Project operating budget actuals. An annual report of actuals 
for the full operating year will be submitted by the borrower, or its 
agent, using Form FmHA or its successor agency under Public Law 103-354 
1930-7. The report will reflect the actual income and expenses for the 
project for the borrower's 12-month operating year. The report will be 
submitted with the annual audit report or Form FmHA or its successor 
agency under Public Law 103-354 1930-8, as appropriate.
    (iv) Form FmHA or its successor agency under Public Law 103-354 
1930-10, ``Annual Multiple Family Housing Project Review.'' When the 
annual audit report or verification of review is received, parts II C 
and D of Form FmHA or its successor agency under Public Law 103-354 
1930-10 may be prefilled to the extent possible to record previous year 
status as reported in the audit report or verification of review. The 
Form FmHA or its successor agency under Public Law 103-354 1930-10 will 
be completed later as described in Sec.  1930.123 (e)(2) and (i) of this 
subpart.
    (v) Fraud, abuse, and illegal acts. If the review verifier becomes 
aware of any indication of fraud, abuse, or illegal acts in FmHA or its 
successor agency under Public Law 103-354 financed projects, prompt 
written notice shall be given to the appropriate Servicing Official.
    (2) Specific standards.

[[Page 269]]

    (i) State and local governments and Indian tribes. These 
organizations are to be audited in accordance with this subpart, 7 CFR 
part 3015, and OMB Circular A-128, with copies of the audit being 
forwarded by the borrower to the Servicing Official and the appropriate 
Federal cognizant agency, if applicable. For guidance in meeting these 
requirements, the auditor may refer to the American Institute of 
Certified Public Accountants Audit and Accounting Guide for ``Audits of 
State and Local Governmental Units.'' The term Federal financial 
assistance used herein shall mean Federal loan and/or grant funds 
received by the borrower, but not rental subsidies.
    (A) Cognizant agency. (1) ``Cognizant agency'' means the Federal 
agency assigned by OMB Circular A-128. Within the U.S. Department of 
Agriculture (USDA), the USDA OIG shall fulfill cognizant agency 
responsibilities.
    (2) Cognizant agency assignments. Smaller borrowers not assigned a 
cognizant agency by OMB should contact the Federal agency that provided 
the most funds. When USDA is designated as the cognizant agency or when 
it has been determined by the borrower that FmHA or its successor agency 
under Public Law 103-354 provided the major portion of Federal financial 
assistance, the appropriate USDA OIG Regional Inspector General shall be 
contacted.
    (B) Audit standards. It is not intended that audits required by this 
subpart be separate and apart from audits performed in accordance with 
State and local laws. To the extent feasible, the audit work should be 
done in conjunction with those audits.
    (1) State and local governments and Indian tribes that receive 
$100,000 or more a year in Federal financial assistance shall have an 
audit made in accordance with OMB Circular A-128.
    (2) State and local governments and Indian tribes that receive 
between $25,000 and $100,000 a year in Federal financial assistance 
shall have an audit made in accordance with OMB Circular A-128 or in 
accordance with the FmHA or its successor agency under Public Law 103-
354 Audit Program. This is an option of the State and local government 
or Indian tribe. If the election is made to have an audit performed in 
accordance with the FmHA or its successor agency under Public Law 103-
354 Audit Program, the audit shall be in accordance with paragraph XIII 
C 2 d(2)(iii) of this exhibit.
    (3) State and local governments and Indian tribes that receive less 
than $25,000 a year in Federal financial assistance shall be exempt from 
compliance with OMB Circular A-128 and the FmHA or its successor agency 
under Public Law 103-354 Audit Program. These State and local 
governments and Indian tribes shall be governed by audit standards 
prescribed by State and local law or regulation.
    (4) Public hospitals and public colleges and universities may be 
excluded from OMB Circular A-128 audit standards. If such entities are 
excluded, audits shall be made in accordance with paragraph XIII C 2 
d(2)(ii) of this exhibit.
    (5) Indications of fraud, abuse, and illegal acts shall be referred 
to FmHA or its successor agency under Public Law 103-354 for processing 
in accordance with paragraph XIII C 2 d(1)(v) of this exhibit.
    (ii) Nonprofit institutions. These organizations are to be audited 
in accordance with this subpart, 7 CFR part 3015, and OMB Circular A-
133, with copies of the audit being forwarded by the borrower to the 
Servicing Office and the appropriate Federal cognizant agency, if 
applicable. The term Federal financial assistance used herein shall mean 
Federal loan and/or grant funds received by the borrower, but not rental 
subsidies.
    (A) Cognizant agency. See paragraph XIII C 2 d(2)(i)(A) of this 
exhibit.
    (B) Audit standards.
    (1) Nonprofit institutions that receive $100,000 or more a year in 
Federal financial assistance shall have an audit made in accordance with 
the provisions of OMB Circular A-133. However, nonprofit institutions 
receiving $100,000 or more but receiving awards under only one program 
have the option of having an audit of their institution prepared in 
accordance with the provisions of the OMB Circular A-133 or having an 
audit made of the one program in accordance with paragraph XIII C 2 
d(2)(iii) of this exhibit. For prior or subsequent years, when an 
institution has only loan guarantees or outstanding loans that were made 
previously, the institution will be required to conduct audits for those 
programs in accordance with paragraph XIII C 2 d(2)(iii) of this 
exhibit.
    (2) Nonprofit institutions that receive at lease $25,000 but less 
than $100,000 a year in Federal financial assistance shall have an audit 
made in accordance with OMB Circular A-133 or in accordance with the 
FmHA or its successor agency under Public Law 103-354 Audit Program. If 
the election is made to have an audit performed in accordance with the 
FmHA or its successor agency under Public Law 103-354 Audit Program, the 
audit shall be performed in accordance with paragraph XIII C 2 d(2)(iii) 
of this exhibit.
    (3) Nonprofit institutions receiving less than $25,000 a year in 
Federal financial assistance are exempt from Federal audit standards, 
but records must be available for review by appropriate officials of 
FmHA or its successor agency under Public Law 103-354.
    (C) Fraud, waste, and abuse. Indications of fraud, abuse, and 
illegal acts shall be processed in accordance with paragraph XIII C 2 
d(1)(v) of this exhibit.

[[Page 270]]

    (iii) FmHA or its successor agency under Public Law 103-354 Audit 
Program. For-profit organizations and other entities referred to this 
paragraph by paragraphs XIII C 2 d(2)(i) and/or (ii) of this exhibit, 
audits will be performed under the guidance of the audit guide entitled 
``U.S. Department of Agriculture, Farmers Home Administration or its 
successor agency under Public Law 103-354-Audit Program'' (available in 
any FmHA or its successor agency under Public Law 103-354 office).
    (3) Due date. (i) Annual audit reports and verifications of review, 
as appropriate, and Form FmHA or its successor agency under Public Law 
103-354 1930-7 with 12 months of project operation actuals are due in 
the Servicing Office no later than 90 days following the close of the 
project fiscal year.
    (ii) If the audit or verification of review and Form FmHA or its 
successor agency under Public Law 103-354 1930-7 with 12 months of 
project operation actuals cannot be submitted by the due date, and the 
owner presents a request for extension supported by evidence that delay 
is at the request of the auditor, and the request has a reasonable 
explanation of why an extension of the due date is needed, the Servicing 
Official may authorize up to a 30-day extension of the due date.
    (iii) If an explanation is not forthcoming from the auditor, or the 
explanation received is without good reason, or the Servicing Official 
otherwise suspects fiscal difficulty, the Servicing Official may request 
the borrower to submit to the Servicing Office for review, the project 
bank statements for the general operating, reserve, and investment 
accounts covering the most recent 60-day period.
    (iv) If the borrower fails to submit the requested bank statements 
by the date stipulated by the Servicing Official, the Servicing Official 
will immediately refer the matter to the OIG.
    (4) FmHA or its successor agency under Public Law 103-354 review. An 
audit report or verification of review and Form FmHA or its successor 
agency under Public Law 103-354 1930-7 with 12 months of project 
operation actuals will be reviewed by the Servicing Official within 60 
days following receipt of the audit report or verification of review. 
From this annual audit review process, the Servicing Official will 
initiate action on findings and concerns needing immediate attention. 
Those findings and concerns not needing immediate action will be 
considered in the next budget planning and annual review process at the 
end of the fiscal year for implementation in the following fiscal year 
of project operation.
    e Miscellaneous management reports. These reports include, but are 
not limited to, the following items that provide additional or unique 
information that augment or otherwise support other management reports 
described in this section:
    (1) Documents and formats. (i) Minutes of annual meetings. Written 
record of annual meeting of organizational borrowers who, by their 
organizational charter, are required to maintain such written records.
    (ii) Energy audit. Prepared according to the guidance of exhibit D 
of this subpart. Energy audits, including implementation plans for 
energy conservation, are prepared and submitted on multi-year cycles.
    (iii) Miscellaneous items. These include other written or 
electronically stored data or information such as financial or income/
expense data, justification statements, or other technical or 
informative material that stands alone or supports other managements 
reports described in this section, whether volunteered by the borrower 
or requested by the Servicing Official.
    (2) Due date. Annual minutes and miscellaneous items are due along 
with the report they are attached to as supporting documentation. New 
energy audits are due with the next submission of Form FmHA or its 
successor agency under Public Law 103-354 1930-7 following expiration of 
the old energy audit.
    (3) FmHA or its successor agency under Public Law 103-354 review. 
FmHA or its successor agency under Public Law 103-354 review of 
miscellaneous management reports will coincide with review of the 
management report that each is attached to as documentation.
    f Project worksheets.
    (1) Submit Form FmHA or its successor agency under Public Law 103-
354 1944-29, with the payment to the Servicing Office. This form must be 
submitted each month to report overage, occupancy surcharge, and/or 
request RA, even if a loan payment is not submitted. This form reflects 
occupancy in the project as of the first day of the month preceding the 
payment due date. The form will be retained indefinitely.
    (2) For LH projects, Form FmHA or its successor agency under Public 
Law 103-354 1944-29 will be submitted monthly for the LH tenants who 
receive RA. Otherwise, the Form FmHA or its successor agency under 
Public Law 103-354 1944-29 covering all LH tenants will be submitted to 
FmHA or its successor agency under Public Law 103-354 at least once 
annually with the annual reports. The form will be retained 
indefinitely.
    (3) Illustration of MFH budget planning, annual review, and annual 
audit review cycles.

[[Page 271]]



----------------------------------------------------------------------------------------------------------------
                                    Last quarter of    First quarter of
Items on hand during fiscal year      fiscal year           next FY         Second quarter
----------------------------------------------------------------------------------------------------------------
Management Reports/items in       Budget Planning     Annual audit        FmHA or its         File annual audit
 borrower casefile.                Process Form FmHA   preparation by      successor agency    or Form FmHA or
--Previous fiscal year annual      or its successor    auditor or Form     under Public Law    its successor
 audit or Form FmHA or its         agency under        FmHA or its         103-354 review of   agency under
 successor agency under Public     Public Law 103-     successor agency    annual audit or     Public Law 103-
 Law 103-354 1930-8..              354 1930-7 &        under Public Law    Form FmHA or its    354 1930-8 for
                                   util. allowance     103-354 1930-8 by   successor agency    next budget
                                   Review change or    verifier.           under Public Law    planning & annual
                                   no change of                            103-354 1930-8 60-  review process.
                                   rents or                                day review period.
                                   occupancy charges
                                   and/or utility
                                   allowance.
--Exhibit A-1
--Latest supervisory visit/       FmHA or its         Form FmHA or its    FmHA or its
 inspection.                       successor agency    successor agency    successor agency
                                   under Public Law    under Public Law    under Public Law
                                   103-354 starts      103-354 1930-7      103-354 completes
                                   annual review       showing 12 months   annual review
                                   process.            of project          process.
                                                       operating actuals
                                                       submitted by
                                                       borrower.
--Energy audit & implementation   --Form FmHA or its  ..................  FmHA or its
 plan.                             successor agency                        successor agency
--Compliance review.............   under Public Law                        under Public Law
--Management plan...............   103-354 1930-7.                         103-354 may
--Management agreement..........  --Review project                         prefill parts II
                                   financial and                           C and D of Form
                                   management                              FmHA or its
                                   reports..                               successor agency
                                                                           under Public Law
                                                                           103-354 1930-10.
--Identity of Interest (IOI)      FmHA or its         ..................  Take immediate
 Disclosure Certificate, Form      successor agency                        action on
 FmHA or its successor agency      under Public Law                        significant items
 under Public Law 103-354 1944--   103-354 completes                       found in the
 30 and Identity of Interest       Form FmHA or its                        Audit Review.
 (IOI) Qualification Form, Form    successor agency
 FmHA or its successor agency      under Public Law
 under Public Law 103-354 1944--   103-354 1930-10.
 31.
Other--as applicable
----------------------------------------------------------------------------------------------------------------

    D Financial and management analysis. Financial and management 
analysis provides information on the status of the project's operation. 
Regular analysis by the borrower and/or FmHA or its successor agency 
under Public Law 103-354 can help identify strengths, weaknesses, and 
reasonableness of income and expenses so that appropriate corrective 
actions can be taken. Some methods of analysis FmHA or its successor 
agency under Public Law 103-354 encourages are:
    1 Budget analysis: Using quarterly (or monthly if deemed necessary) 
and annual reports, the borrower or project manager compares actual 
income and expenses with the budgeted amounts. Any differences between 
the budget and actual figures indicate areas of the project operation 
where the manager may need to focus added attention and/or take 
corrective action.
    2 Ratio analysis: Ratios are an effective tool for financial 
analysis. They prescribe various measures of actual operating 
performance. FmHA or its successor agency under Public Law 103-354 and 
borrowers should develop a data base of recorded ratios for comparative 
analysis. Some useful ratios are:

[[Page 272]]

[GRAPHIC] [TIFF OMITTED] TC05SE91.000

    XIV Termination and Eviction: Borrowers and project managers should 
actively develop ways and means to avoid forced termination of leases or 
occupancy agreements and the eviction of tenants or members by 
considering the following:
    A Entitlement to continued occupancy.
    1 General. The borrower or project manager may terminate or refuse 
to renew any occupancy only for material noncompliance with the lease or 
occupancy agreement or other good cause such as:
    a Noneligibility for tenancy.
    b Action or conduct of the tenant or member which disrupts the 
livability of the project by being a direct threat to the health or 
safety of any person, or the right of any tenant or member of the quiet 
enjoyment of the premises and related project facilities, or that 
results in substantial physical damage causing an adverse financial 
effect on the project, or the property of others, Except when such 
threat can be removed by applying a reasonable accommodation.
    c Expiration of the lease or occupancy agreement period is not 
sufficient grounds for eviction of a tenant or member.
    2 Material noncompliance. Material noncompliance with the lease or 
occupancy agreement includes:
    a One or more substantial violations of the lease or occupancy 
agreement; or
    b Nonpayment or repeated late payment of rent or occupancy charge or 
any other financial obligation due under the lease or occupancy 
agreement (including any portion thereof) beyond any grace period 
constitutes a substantial violation; or
    c Admission to or conviction for use, attempted use, possession, 
manufacture, selling, or distribution of an illegal controlled substance 
that:
    (1) is conducted in or on the premises by the tenant or someone 
under the tenant's control.
    (2) is allowed to happen by a household member or guest because the 
tenant has not taken reasonable steps to prevent or control such illegal 
activity; or because the tenant has not taken steps to remove the 
household

[[Page 273]]

member or guest who is conducting the illegal activity.
    (3) It is not the intent that this provision of material lease 
violation apply to innocent members of the tenant's household who are 
not engaged in the illegal activity, nor are responsible for control of 
another household member or guest. It is the intent that such innocent 
persons can remain in the dwelling unit if an otherwise eligible 
household remains or can be formed.
    3 Other good cause.
    a Repeated minor violations of the lease or occupancy agreement 
which disrupt the livability and harmony of the project by adversely 
affecting the health or safety of any person, or the right of any tenant 
or member to the quiet enjoyment of the leased premises and the related 
project, or that have an adverse financial effect on the project.
    b The borrower or project manager must base their decision on 
current objective data, not on supposition that the tenant may or could 
pose a harm or threat to other persons or property.
    c Conduct cannot be considered as other good cause unless the 
borrower or project manager has given the tenant or member prior notice 
that the conduct will constitute a basis for termination of occupancy.
    4 Rent overburden.
    a Any tenant household (except those receiving Section 8 benefits) 
paying more than the contribution levels cited in paragraphs IV A 2 c 
(1), (2), or (3) of this exhibit toward rent, including utilities, is 
considered to be experiencing rent overburden that may jeopardize a 
tenant's ability to maintain occupancy.
    b Whenever a tenant is experiencing rent overburden, borrowers are 
encouraged to utilize any available and compatible governmental or 
private rental subsidies including FmHA or its successor agency under 
Public Law 103-354 RA and/or interest credit; or to inform tenants where 
they may apply for Section 8 housing assistance to minimize termination 
of tenancy.
    c With reference to FmHA or its successor agency under Public Law 
103-354 RA or interest credit, no further action by the borrower is 
necessary if the borrower has already requested RA in conjunction with a 
previous rental or occupancy charge change request.
    d For purpose of this provision, the term ``rent overburden'' also 
refers to occupancy charges paid by cooperative members.
    5 Tenant or member benefits during termination through eviction.
    a Continued occupancy. Tenant or member households may continue 
occupancy through the specified termination date, or if judicial action 
is initiated to evict, to the specified date in a court order for 
eviction. In addition, this policy applies when a tenant or member has 
filed a discrimination complaint and a final decision on the complaint's 
resolution is awaited from the Department's Office of Advocacy and 
Enterprise or the Department of Housing and Urban Development.
    b Rental subsidy. During termination, RA payments and/or interest 
credit will be administered following this outline according to type of 
situation:
    (1) Failure to recertify.
    (i) If failure to recertify is the fault of the tenant or member:
    (A) The borrower will charge the tenant or member note rate rent or 
occupancy charge during the period of occupancy with an expired 
certification and will remit collected overage to the Servicing Office.
    (B) If the tenant or member does not pay rent during this period, 
the project will not be required to pay overage.
    (ii) The borrower will send a copy of the termination notice to the 
Servicing Official, together with a copy of the ``90 day'' and ``30 
day'' letters sent to the tenant.
    (iii) The Servicing Official will suspend payment of any RA until 
the recertification process is completed; otherwise until the tenant or 
member moves out or is evicted by court order, whichever occurs first.
    (iv) The Servicing Official will annotate the next processed project 
master list with an ``E'' for expiration in column 5 of part II of Form 
FmHA or its successor agency under Public Law 103-354 1944-29 for the 
appropriate tenant(s) or member(s).
    (v) If failure to recertify is the fault of the borrower or 
management, through no fault of the tenant or member:
    (A) The Servicing Official will advise the borrower or management to 
rescind the notice of termination.
    (B) Overage will be paid from project funds or by the management 
agent, depending on the provisions of the management plan and management 
agreement.
    (C) Until a new tenant certification is effective, the tenant shall 
continue to pay the rent or occupancy charge established by the expired 
tenant certification.
    (vi) If the termination process is nullified, either by completing 
the recertification process, by judicial action or the resolution of a 
discrimination complaint, the Servicing Official will restore RA and 
request RA payment retroactive to the date it was withheld, based on the 
newly verified tenant certification. If the termination process ends 
with voluntary tenant/member move-out or court ordered eviction, 
whichever occurs first, the RA will be assigned to the next tenant or 
member that is RA eligible at the time of the move-out or eviction.
    (2) Lease violation.
    (i) The borrower will send a copy of the termination notice to the 
Servicing Official.
    (ii) The Servicing Official will annotate the next processed project 
master list with a

[[Page 274]]

``T'' for termination in column 5 of part II of Form FmHA or its 
successor agency under Public Law 103-354 1944-29 for the appropriate 
tenant(s) or member(s).
    (iii) The Servicing Official will continue to authorize RA for the 
tenant or member.
    (iv) The borrower will continue to charge and collect the rental or 
occupancy charge rate established by the tenant's or member's current 
tenant certification.
    (v) If the termination process is nullified, either by resolution of 
the lease violation or by court action, normal tenant/member status 
resumes. If the termination ends with tenant/member move-out or court 
ordered eviction, whichever occurs first, the RA will be assigned to the 
next tenant or member that is RA eligible at the time of the move-out or 
eviction.
    (vi) If the tenant certification expires while a notice of 
termination for lease violation or good cause is in effect (i.e., 
litigation is pending):
    (A) The borrower will continue to assess the rent or occupancy 
charge to the tenant/member at the rates established by the expired 
tenant certification, through such time the court has rendered a 
decision, or the tenant/member has moved out, whichever occurs first. 
(Note: the tenant/member must pay the rent or occupancy charge into an 
escrow account pending the outcome of litigation.)
    (B) The project will not be required to pay overage.
    (C) Should the court deny the termination and order reinstatement of 
occupancy, the borrower shall promptly complete the recertification 
process as of the current time to become effective as soon as possible, 
collect the due rent or occupancy charge, and request RA retroactive to 
the date it was suspended.
    B Notice of lease or occupancy agreement violation. A notice of 
lease or occupancy agreement violation is prepared and issued by the 
borrower or authorized representative. Any such notice must be based on 
material violation of the lease or occupancy agreement terms or for 
other documented good cause as determined by the borrower or the project 
manager.
    1 The notice of lease or occupancy agreement violation will be 
handled according to the terms of the lease or occupancy agreement. 
Tenants or members will be given prior notice of lease or occupancy 
agreement violation according to State or local law. The notice must:
    a Refer to relevant provisions in the lease or occupancy agreement.
    b State the violations with enough information describing the nature 
and frequency of the problem to enable the tenant or member to 
understand and correct the problem. In those cases where the lease or 
occupancy agreement violation is due to the tenant's failure to pay rent 
or the member's failure to pay occupancy charge, a notice stating the 
dollar amount of the balance due on the rent or occupancy charge account 
and the date of such computation shall satisfy this requirement.
    c State that the tenant or member will be expected to correct the 
lease or occupancy agreement violation by a specified date.
    d State that the tenant or member may informally meet with the 
borrower or borrower representative to attempt to resolve the stated 
violation before the date of corrective action specified in the notice.
    e Advise the tenant or member that if he or she has not corrected 
the stated violation by the date specified, the borrower may seek to 
terminate the lease or occupancy agreement by bringing forth a judicial 
action, at which time the tenant or member may present a defense.
    2 The notice shall be accomplished by: sending a letter by first 
class mail to the tenant or member at his or her address at the project; 
or by serving a copy of the notice on any adult person answering the 
door at the dwelling unit, or if no adult responds, by placing the 
notice under or through the door, if possible, or by affixing the notice 
to the door. Service shall not be deemed effective until either method 
of notice as described herein has been accomplished. The date on which 
the notice shall be deemed to be received by the tenant or member shall 
be the date on which the required first class letter is mailed, or the 
date on which the notice provided for in this paragraph is properly 
given, whichever method of service is used.
    C Notice of termination.
    1 Upon failure by the tenant or member to meet the condition(s) or 
correct the violation(s) stated in the notice of lease or occupancy 
agreement violation by the date specified, the tenant or member will be 
notified that the occupancy is terminated and that eviction is being 
sought through the appropriate judicial process according to State or 
local law.
    2 The notice of termination is prepared and issued by the borrower 
or its authorized representative in accordance with the prior notice 
requirements and provisions of State or local law.
    3 If State or local law is silent or otherwise not explicit, the 
notice must state the reason and basis for the termination of occupancy 
(i.e., material or other good cause violation, or both).
    4 The notice of termination must include the location and regular 
office hours during which the tenant or member (or counsel) may view its 
file and copy any information it contains to aid in the tenant's 
member's defense.
    5 The notice will be accomplished in the same manner described at 
paragraph XIV B 2 of this exhibit.

[[Page 275]]

    6 A copy of the notice of termination will simultaneously be 
forwarded to the Servicing Office.
    7 In those states where the notice of lease or occupancy agreement 
violation automatically becomes the notice of termination after a 
prescribed period of time, the requirements of the notice of termination 
have been met.
    D Servicing Official review.
    1 Upon receipt of a copy of notice of termination, the Servicing 
Official shall promptly review the notice for technical compliance with 
paragraph XIV C of this exhibit and any applicable State Supplements. 
The Servicing Official will not review the notice for the merits of the 
action, nor express any opinion on the merits of the action (this 
responsibility resides with the State or local court).
    2 No further action is required if the notice of termination meets 
technical requirements of preparation.
    3 If the notice of termination fails to meet the technical 
requirements of preparation, the Servicing Official will:
    a Inform the borrower how the notice of termination failed to meet 
the technical requirements of preparation,
    b Inform the borrower to cease the action,
    c Inform the borrower that it may reissue a new revised notice of 
termination if the borrower believes the conditions still warrant such 
action, and
    d Send to the tenant a copy of the Servicing Official's letter that 
was sent to the borrower.
    E Notice of eviction. A notice of eviction is prepared and issued by 
a court of law, not the borrower or its authorized representative. 
Eviction will be carried out as specified by the terms of the eviction 
notice and court order.
    XV SECURITY SERVICING: Security servicing, as referenced in this 
exhibit, concerns the borrower's general responsibilities in relation to 
the loan agreement or resolution, note, mortgage, and other loan 
documents. It does not deal with security items between the borrower and 
the tenants or members. FmHA or its successor agency under Public Law 
103-354 will look to the borrower to fulfill its obligation according to 
the requirements of the loan agreement or resolution, note, mortgage, 
and other legal or closing documents. Some items of special emphasis 
are:
    A Fidelity coverage. It is the borrower's overall responsibility as 
described in the management plan to see that fidelity coverage is in 
place on any personnel entrusted with the receipt, custody, and 
disbursement of any project monies, securities, or readily saleable 
property other than money or securities. The borrower should have 
fidelity coverage in force as soon as there are assets within the 
organization and it must be obtained before any loan funds or interim 
financing funds are made available to the borrower. Coverage must be 
from a company licensed to provide coverage in the state where the 
project is located. Fidelity coverage obtained should utilize standard 
industry forms copyrighted by an organization such as the American 
Association of Insurance Services, or AAIS; Insurance Services Office, 
Inc., or ISO; or the Surety Association of America, or SSA. Use of the 
following guidelines will meet the administrative intent of FmHA or its 
successor agency under Public Law 103-354:
    1 Fidelity coverage policies must declare in the insuring 
agreement(s) that the insurance company will provide protection to the 
insured against the loss of project money, securities, and property 
other than money and securities, through any criminal or dishonest act 
or acts committed by any ``employee,'' whether acting alone or in 
collusion with others, not to exceed the amount of indemnity stated in 
the declaration of coverage. The FmHA or its successor agency under 
Public Law 103-354 minimally requires any insuring policy to include an 
insuring agreement that covers employee dishonesty.
    2 The types of coverage policies acceptable to FmHA or its successor 
agency under Public Law 103-354 are:
    a Blanket crime policy. This type of policy usually provides the 
broader fidelity coverage and economy of cost options. Premiums are 
subject to discount based on the level of internal control exercised by 
the insured operation. This type of policy can provide the following 
insuring agreements:
    (1) Employee dishonesty--Form A, Blanket. (Required)
    (2) Loss inside the premises--Money and Securities Broad Form. 
(Recommended)
    (3) Loss outside the premises--Money and Securities Broad Form. 
(Recommended)
    (4) Depositor's forgery or alteration. (Recommended)
    b Fidelity bond. Fidelity bonds limit coverage only to employee 
dishonesty. Fidelity bonds are generally used when one or two employees 
are covered. Premiums are based on established rate charges that are 
usually greater than for blanket crime policies.
    (1) Schedule and position bonds. A schedule bond covers a named 
employee and is acquired with each change of employment. A position bond 
covers a named position of responsibility and permits continuous 
coverage even though the person holding that position changes. Of the 
two, a position bond is preferred by FmHA or its successor agency under 
Public Law 103-354.
    (2) Blanket bonds. Blanket bonds cover all employees in either of 
two forms:
    (i) Commercial blanket bond (Form A). This bond limits coverage to 
each loss, irrespective of how many persons are involved.

[[Page 276]]

This form of bond is available on a ``standard'' basis.
    (ii) Blanket position bond (Form B). This bond limits coverage to 
each employee, hence it can provide greater protection if there is 
collusion of two or more persons. This is a nonstandard form of bond 
available from some insurance companies who use their own individualized 
forms.
    3 The FmHA or its successor agency under Public Law 103-354 requires 
only an endorsement listing all FmHA or its successor agency under 
Public Law 103-354 financed properties and their locations covered under 
the policy or bond. The policy or bond may also include properties or 
operations other than FmHA or its successor agency under Public Law 103-
354 financed properties on separate endorsement listings.
    4 Individual or organizational borrowers will have fidelity coverage 
when they have employees with access to project assets as cited in 
paragraph XV A of this exhibit; otherwise, a management company with 
exclusive access to the borrower's assets will have the fidelity 
coverage.
    5 Borrowers who use a management agent with exclusive access to 
project assets as cited above will require the Agent to have fidelity 
coverage on all principals and employees with access to the project 
assets. Should active management revert to the borrower, the borrower 
will obtain fidelity coverage as specified in XV A 1 of this paragraph 
as a first course of business.
    6 Fidelity coverage is not required when a loan is made to an 
individual (a natural person) or a General Partnership and that person 
or general partner will be responsible for a project's financial 
activities. (An individual person cannot bond or obtain coverage against 
its own actions.)
    7 In the case of a land trust where the beneficiary is responsible 
for management, the beneficiary will be treated as an individual.
    8 A limited partnership will not be required to have fidelity 
coverage on its general partners UNLESS one or more of its general 
partners perform financial acts coming within the scope of the usual 
duties of an ``employee.''
    9 The minimum amount of fidelity coverage will be the amount 
calculated by multiplying an exposure index by a coverage factor. When 
the calculated amount is less than $10,000, minimum coverage of $10,000 
must be provided. This calculation is made as follows:
    a Determine exposure index: Exposure index=25 percent of the SUM of 
annual cash receipts (rents, cash subsidy, interest, etc.) and cash 
(cash carryover, reserves, CD's, tax and insurance escrows, etc.). Round 
to next higher $1,000.
    b Determine coverage: Coverage = exposure index x coverage factor 
taken from the coverage chart. Round to next higher $1000.
    c Coverage chart:

------------------------------------------------------------------------
                                                                Coverage
                        Exposure index                           factor
------------------------------------------------------------------------
$100,000 or less.............................................        .30
$100,000 to $200,000.........................................        .28
$200,000 to $300,000.........................................        .26
$300,000 to $400,000.........................................        .24
$400,000 to $500,000.........................................        .22
$500,000 to $600,000.........................................        .20
$600,000 to $700,000.........................................        .18
$700,000 to $800,000.........................................        .16
$800,000 to $900,000.........................................        .14
$900,000 to $1,000,000.......................................        .12
$1,000,000 or more...........................................        .10
------------------------------------------------------------------------

    d Example: $245,000 exposure index x 26=$63,700 Minimum coverage 
(rounded) = $64,000
    10 A deductible is designed to allow flexibility in balancing what 
the project can prudently pay from its own assets, at a time of loss, 
against the economy of annual premiums in its annual budget. The 
following deductible levels will meet FmHA or its successor agency under 
Public Law 103-354 requirements:

------------------------------------------------------------------------
                                                              Deductible
                      Fidelity coverage                          level
------------------------------------------------------------------------
Under 50,000................................................      $1,000
In the area of $100,000.....................................       2,500
In the area of $250,000.....................................       5,000
In the area of $500,000.....................................      10,000
In the area of $1,000,000...................................      15,000
------------------------------------------------------------------------

    11 When discussing fidelity coverage with its insurance agent, the 
borrower and/or management agent should inquire how it can improve its 
internal controls to reduce exposure to risk. Adoption of improvement 
measures may result in lower premiums.
    12 The premium for a borrower's fidelity coverage on project site 
employees is a project expense.
    13 The premium of a management agent's fidelity coverage for the 
agent's principals and employees will be the management agent's business 
expense (i.e., it is included within the management fee). When a project 
site employee is covered under the ``umbrella'' of the agent's fidelity 
coverage, the pro rata portion of the premium covering the employee may 
be considered a project expense.
    14 Fidelity coverage should be reviewed during annual review and 
adjusted when necessary.
    B Insurance. The minimum amounts and types of insurance required of 
the borrower will be determined by FmHA or its successor agency under 
Public Law 103-354 in accordance with subparts A and B of part 1806 of 
this chapter (FmHA or its successor agency under Public Law 103-354 
Instructions 426.1

[[Page 277]]

and 426.2) except as otherwise described in this paragraph. All 
references to County Supervisor shall be construed to mean Servicing 
Official when applied to the multiple housing program. The borrower or 
its agent shall obtain:
    1 Adequate fire, extended coverage, and earthquake insurance as 
needed will be required on all buildings included as security for the 
loan or grant (see Guide Letter 1930-4 for requesting renewals). The 
amount of coverage will be not less than the ``Total Estimated 
Reproduction Cost New of Improvements,'' on page 5 of Form FmHA or its 
successor agency under Public Law 103-354 1922-7, ``Appraisal Report for 
Multi-Unit Housing.'' The following additional provisions will apply:
    a An initial insurance policy with evidence of first year paid 
premium will be delivered to the FmHA or its successor agency under 
Public Law 103-354 Servicing Official at the time of loan closing or 
transfer of loan, providing at least 1 year of coverage.
    b Form FmHA or its successor agency under Public Law 103-354 426-2, 
``Property Insurance Mortgage Clause,'' or the provisions thereof 
printed in the policy or in a blanket letter from an insurance company, 
must be part of the policy; namely to provide FmHA or its successor 
agency under Public Law 103-354, as mortgagee, with at least 10 days 
advance notice of cancellation.
    c Evidence of paid premium in subsequent years will not be required.
    d Any change of insurance provider or level of coverage or term, 
will be provided to the Servicing Official by use of part VII ``Notice 
of Change to Borrower/Project Status,'' of Form FmHA or its successor 
agency under Public Law 103-354 1930-7.
    2 Suitable Worker's Compensation Insurance on all its employees. 
Worker's Compensation Insurance for employees of a management agent 
shall be paid out of the agent's management fee. When a project site 
employee is covered under the ``umbrella'' of the agent's insurance, the 
portion of premium attributable to a project site employee may be a 
project expense.
    3 Adequate liability insurance.
    4 Flood insurance when the project is located in a designated flood 
hazard area.
    5 A blanket insurance policy may be accepted from a borrower when 
blanket coverage is more cost effective for each FmHA or its successor 
agency under Public Law 103-354 financed project on a prorata basis, and 
an endorsement is attached to the policy listing FmHA or its successor 
agency under Public Law 103-354 financed projects, locations, and 
coverage limits separate from any other properties covered by the 
policy.
    C Real estate and personal property taxes. All borrowers will be 
required to pay their taxes before they become delinquent and provide 
FmHA or its successor agency under Public Law 103-354 with proof of 
payment (see Guide Letter 1930-7 to remind borrowers to pay taxes). An 
exception to the above may be made if the borrower has formally 
contested the amount of the property assessment and had escrowed the 
amount of taxes in question in a manner acceptable to the Servicing 
Official.
    XVI Automation of FmHA or its successor agency under Public Law 103-
354 Forms and Formats: The various forms and formats approved or 
prescribed for use by borrowers and their agents throughout this subpart 
may be prepared on automated systems when the following criteria is 
complied with:
    A FmHA or its successor agency under Public Law 103-354 forms 
approved for official use by OMB.
    1 The identical wording and nomenclature of an official form must be 
included in the automated version of the form, including the OMB 
approval number.
    2 The function (i.e., logic or mathematical calculation) of an 
official form must be the same in an automated version of the form.
    3 The name or logo of the source of an automated form must be 
visibly annotated on each output of the automated form.
    4 Nominal spacing adjustment of the content of an official form on 
the automated format is permitted to accommodate limitations of 
automation software and hardware.
    5 Output size must be 8\1/2\ inches x 11 inches.
    6 Output on colored paper is permissible but not required by FmHA or 
its successor agency under Public Law 103-354.
    B Unofficial FmHA or its successor agency under Public Law 103-354 
formats. Items such as management plans, management agreements, waiting 
lists, and FmHA or its successor agency under Public Law 103-354 guide 
letters should be automated to the extent possible. Content and 
completion of the format must be developed according to FmHA or its 
successor agency under Public Law 103-354 guidelines for the item.

[58 FR 40868, July 30, 1993, as amended at 59 FR 3779, Jan. 27, 1994; 59 
FR 6886, Feb. 14, 1994; 62 FR 25065, May 7, 1997; 67 FR 78327, Dec. 24, 
2002]

Exhibit B-1 to Subpart C of Part 1930--Management Plan Requirements for 
  Farmers Home Administration or Its Successor Agency Under Public Law 
         103-354 Financed Multiple Family Housing (MFH) Projects

    The objective of a management plan is to describe the property 
owner's expectations and standards for performance, timing, and results 
of management of all aspects of the various components of property 
operation,

[[Page 278]]

maintenance, and compliance with applicable laws and regulations. This 
exhibit is intended to guide the owner in identifying the various 
components of property management in an organized manner. The listing of 
discussion items under each component is intended as further guidance. 
Items should be added if needed; likewise, those items listed and not 
applicable to a given property situation need not be addressed.
    FmHA or its successor agency under Public Law 103-354 requires 
management of FmHA or its successor agency under Public Law 103-354 
financed MFH projects to be in compliance with applicable Federal, 
State, and local laws and this regulation. Exhibit B-4 of this subpart 
will be used by a prospective management agent to provide a resume of 
management background and/or experience. Exhibit B-5 of this subpart 
will be used by an owner who proposes to provide direct project 
management. In rural cooperative housing (RCH), a cooperative's board of 
directors will manage the business of the cooperative with the 
assistance of the adviser to the board. If the board is unable, in the 
adviser's opinion, to manage the cooperative after an adequate period of 
training, then FmHA or its successor agency under Public Law 103-354 
will make the determination of whether the cooperative will hire 
professional management.
    FmHA or its successor agency under Public Law 103-354 will review 
the management plan to evaluate the borrower's standards for project 
management. The management plan and any subsequent revisions must be 
signed by the borrower, and then approved and signed by the authorized 
FmHA or its successor agency under Public Law 103-354 official. No loan 
will be closed or construction started, or loan transfer completed, 
without a properly approved and signed management plan. Management plans 
should be reviewed annually and updated at least triannually by the 
borrower. Any updated or modified management plan will need to be 
reviewed and approved by the Servicing Official at the time of annual 
review. When only a few changes are needed, use of an addendum to the 
plan is acceptable to FmHA or its successor agency under Public Law 103-
354.
    A management plan will reflect understanding of FmHA or its 
successor agency under Public Law 103-354 program requirements for the 
project and address each of the following areas:
    1 The role and responsibility of the owner and the relationship and 
delegations of authority to the management agent. A management agreement 
must be provided where a management agent is to be used. If there is no 
management agent, the management plan should supply the equivalent 
information concerning the management staff assigned to day-to-day 
operation of the project even when the owner provides direct management.
    a Describe and fully justify any identity of interest as described 
in paragraph V B of exhibit B of this subpart.
    b Identify the supervisory relationships, and to whom the incumbent 
of the position responsible for the day-to-day operation of the project 
is accountable.
    c Describe the conditions when the management agent must consult the 
owner before taking any action.
    d Identify the person or position in the owner's organization that 
is the key contact for the management agency. Describe the type of 
decisions to be made by this contact person.
    e Describe the fundamental responsibilities and duties of the owner 
and the managing agent. Identify any areas of overlap and describe how 
the overlap will be handled.
    f Describe any pro rata divisions of singularly incurred operating 
expense that is common to the management agent and the owner (project) 
(i.e., fidelity coverage that may be divided between both).
    2 Personnel policy and staffing arrangements.
    a Describe hiring practices of management and their conformance with 
equal employment opportunity requirements.
    b Include a staffing plan for the project.
    c Describe the lines of authority, responsibility, and 
accountability (internal controls) within the management entity.
    d Describe the standards and plans for training and familiarizing 
employees with their job related responsibilities and applicable FmHA or 
its successor agency under Public Law 103-354 program requirements. 
Describe how such training will generally be achieved.
    3 Plans and procedures for marketing units, achieving and 
maintaining full occupancy, and meeting HUD Form 935.2, ``Affirmative 
Fair Housing Marketing Plan,'' requirements.
    a Describe how affirmative marketing practices will be used. 
Describe the outreach and marketing efforts that will be used to reach 
those low-income and minority persons who are least likely to apply for 
such housing without special outreach efforts.
    b Describe the methods that will be used to achieve and maintain the 
highest possible level of occupancy. When applicable, indicate any 
additional compensation or incentives that may be allowed management 
agents for early initial rent-up. (If this area is not covered in the 
management plan, it will usually not be allowed by FmHA or its successor 
agency under Public Law 103-354 at a later date.)
    c Describe how the units will be advertised. Indicate minimum levels 
planned regardless of occupancy levels.
    d Describe the appropriate communication system, auxiliary aids, or 
other assistance that will be used to ensure effective communication 
with applicants, tenants or

[[Page 279]]

members, and members of the public that have sight or hearing 
impairments.
    e Describe the kinds of reasonable accommodation the project can 
readily provide such as changing water faucets, kitchen equipment, door 
knobs, assigning handicap parking spaces, etc.
    f Describe the process management will follow in reviewing and 
determining whether structural modification of an apartment unit is 
practical and feasible to reasonably accommodate a tenant or household 
member who has a handicap or disability.
    g Indicate whether the FmHA or its successor agency under Public Law 
103-354 sample waiting list (exhibit B-14 of this subpart) or some other 
waiting list will be used. If another waiting list is used, indicate how 
its use will otherwise comply with FmHA or its successor agency under 
Public Law 103-354 guidelines.
    h Attach copies of sample forms that will be used to record unit 
condition, and indicate who will receive copies of the inspection forms.
    i Describe any orientation services to be provided tenants or 
members to acquaint them with the project and care of the units. 
Indicate what printed project information will be given to applicants.
    j Identify the person or staff position responsible for determining 
tenant or member eligibility and their location on the waiting list.
    k In projects receiving tax credits, describe how special waiting 
lists will be established and when eligible tenants with incomes higher 
than tax credit limits will be considered for occupancy.
    4 Procedures for determining eligibility and for certifying and 
recertifying incomes.
    a Describe how applications and other records relevant to this 
function will be kept. If application fees are used, describe them.
    b Describe the level of knowledge, skill, and ability that 
management official(s) will be expected to possess before assuming 
rental related duties such as application processing, eligibility 
determination, selection, unit assignment, certification, 
recertification, rent or occupancy charge collection, and recordkeeping. 
This discussion should mention training and testing to be provided or 
obtained to achieve and maintain the level expected.
    c Identify whether project funds or the management agent will pay 
overage when overage is due through no fault of the tenant or member.
    5 Leasing and occupancy policies.
    a Describe the occupancy standards for the project. (This could be 
shown as an annex to the management plan.)
    b Describe the project admissions and leasing/occupancy policies and 
procedures, and criteria for selecting tenants/members for occupancy. 
(This could be shown as an annex to the management plan.)
    c Describe the level of knowledge, skill, and ability that 
management official(s) will be expected to understand and apply 
regarding project lease provisions and prohibitions, occupancy 
standards, and admissions policies.
    d Describe special procedures that will be used where the marketing 
area includes non-English speaking or reading persons to assure that 
such persons will understand leases or occupancy agreements and 
established rules.
    6 Rent and occupancy charge collection policies and procedures.
    a Describe the project rent/occupancy charge collection policy and 
procedure, covering such matters as where the collection point is, which 
staff position handles the collection, provisions for collection after 
normal office hours, recording, and safeguarding of collections.
    b Describe the project security deposit/membership fee policy and 
procedure covering matters similar to the preceding item. Include 
discussion on handling of any interest earned on such deposits.
    7 Procedures for requesting and implementing a rent or occupancy 
charge change.
    a Describe the process to be followed for preparation and request of 
a change of rents/occupancy charges and/or utility allowances, and to 
notify tenants of such change, to meet FmHA or its successor agency 
under Public Law 103-354 requirements.
    b Identify which staff position or person will process change 
requests.
    c Describe when such change requests will normally be made in terms 
of economic need and timing within a fiscal year of operation.
    8 Plans and procedures for carrying out an effective maintenance, 
repair, and replacement program.
    a Describe the project objective and general plan for preventive 
maintenance.
    b Describe where the project's as-built plans and specifications 
will be located and identify the staff position responsible for updating 
it as modifications occur.
    c Describe the general maintenance procedures and schedules or 
cycles to: (this list could be attached as an addendum)
    (1) Check and service appliances and mechanical equipment.
    (2) Perform safety checks of smoke/fire alarms, fire extinguishers, 
outside lighting, and ice removal, etc.
    (3) Inspect and perform maintenance and redecoration incident to 
tenant/member move-out and move-in.
    (4) Perform major interior and exterior painting and redecorating.
    (5) Perform major repairs and grounds maintenance.
    (6) Remove garbage and trash.

[[Page 280]]

    (7) Perform common areas cleanup (parking lot, entryways, hallways, 
community room, etc.)
    d Describe the project policy and procedure for tenants/members to 
prepare and submit maintenance requests.
    e Describe the general timing for handling purchase orders and 
payments.
    f Describe the project policy for budgeting for and/or requesting 
use of reserve funds for funding major maintenance or replacement items.
    g In migrant or seasonally occupied labor housing (LH), describe the 
above items in terms of season opening and closing dates.
    9 Plans and procedures for providing supplemental services.
    a Describe the types of supplemental services such as laundry and 
vending machines that will be provided to benefit occupants.
    b Explain whether this equipment will be owned and operated by the 
owner or a consignee (vendor).
    c Describe the safekeeping and recording practices (internal 
control) of any cash collections from use of the equipment.
    d Describe who will be responsible for maintaining the equipment and 
stocking any vending machines.
    e When a consignee will operate the equipment, describe the general 
terms of the consignment contract.
    10 Plans for accounting, recordkeeping, and meeting FmHA or its 
successor agency under Public Law 103-354 reporting requirements.
    a Briefly describe the type of project accounting methods (i.e., 
cash or accrual) and records that will be used, how will they be 
maintained, and which staff position will prepare and maintain them.
    b Describe how interest earned on project reserve funds will be 
prorated and accounted ``separately'' if such funds are deposited 
jointly with funds of another project owned by the same borrower.
    c Describe whether the project bookkeeping chart of accounts and 
bank accounts is compatible with Form FmHA or its successor agency under 
Public Law 103-354 1930-7, ``Multiple Family Housing Project Budget,'' 
requirements, and if not, what adjustments will be made when reporting 
actuals on the form.
    d Identify which staff member or position will be responsible for 
the preparation and submission of the quarterly and annual reports 
required by FmHA or its successor agency under Public Law 103-354.
    e Provide assurance or explanation that the person or firm who will 
perform and prepare the annual audit, or verification of review, is not 
associated with the project, other than to perform the audit or review.
    f Discuss the proposed tenant or member record maintenance system 
including retention of records and identify which person/position will 
handle and maintain the records.
    g Identify where records subject to FmHA or its successor agency 
under Public Law 103-354 review will be kept and which person/position 
FmHA or its successor agency under Public Law 103-354 will contract to 
review the records.
    11 Energy conservation measures and practices.
    a Describe the plan to inform and encourage tenants/members in use 
of energy conservation practices they can use in their unit to save 
utility expense (and thus minimize utility allowances and conserve 
rental assistance).
    b Describe the plan to utilize energy conservation practices in the 
common areas of the project (to conserve operating expense and help 
minimize rent/occupancy charge levels).
    c Describe the project objective in implementing energy conservation 
measures, if any, as they are identified in an energy audit.
    12 Plans for tenant participation in rural rental housing (RRH) 
project operations and tenant's relationship with management.
    a Decribe any plans for a tenant organization and how management and 
staff will work with the organization.
    b Describe where the Tenant Grievance and Appeals Procedure (subpart 
L of part 1944 of this chapter) will be posted in the project and 
otherwise made available to tenants. Identify which person or staff 
position will be responsible for responses to and consideration of a 
tenant/member grievance.
    13 Plans for member participation in RCH project operations.
    a Decribe who will explain to the members the types of committees 
the cooperative will be using.
    b Describe what the cooperative will do to attract member 
participation on committees.
    c Describe how the board members will participate with the 
committee.
    d Describe where the cooperative will post, and otherwise make 
available to members, the Tenant Grievance and Appeals Procedure 
(subpart L of part 1944 of this chapter). Identify which person or staff 
position will be responsible for response to and consideration of a 
member grievance.
    14 Plan for carrying out management training programs.
    a Describe the standards of training and proficiency that management 
or board members will be expected to attain and maintain to perform 
their duties and responsibilities in carrying out project objectives, 
including compliance with applicable Federal, State, and local laws.

[[Page 281]]

    b Describe the plan to conduct internal training and to otherwise 
use external training sources to maintain levels of attained 
proficiency.
    c For RCH, describe the actions the board will take if a board 
member(s) does not participate in training.
    d For RCH, describe the role the board will assume in making sure 
the RCH membership as a whole understands its role and functions in the 
cooperative.
    15 Termination of leases or occupancy agreements and eviction.
    a Identify which person or staff position is responsible for knowing 
and administering State and local laws and FmHA or its successor agency 
under Public Law 103-354's requirements regarding termination of leases 
or occupancy agreement and evictions.
    b Identify which person or staff position is responsible for knowing 
and administering State and local laws and FmHA or its successor agency 
under Public Law 103-354's requirements regarding the notification that 
must be given to a tenant or member when termination of lease or 
occupancy agreement is proposed and subsequent eviction procedures 
through the State or local judicial process.
    16 Security servicing.
    a Identify which person or staff position is responsible for knowing 
and complying with FmHA or its successor agency under Public Law 103-354 
requirements for fidelity coverage and acquiring such coverage.
    b Identify which person or staff position is responsible for knowing 
and complying with FmHA or its successor agency under Public Law 103-
354's insurance coverage requirements and acquiring such coverage.
    17 Management agreement. Attach a copy of the management agreement, 
when applicable. (If an initial loan, attach a copy of the proposed 
management agreement, when applicable.) See exhibit B-2 of this subpart 
for requirements for management agreements.
    18 RCH board of director/adviser relationship. Discuss the 
relationship of the adviser and its effect on decisions made by the 
board.
    19 Management compensation.
    a If management is provided directly by the owner, describe the 
amount of management fee, how it will be determined, and how it will be 
paid.
    b In the case of a cooperative, describe the amount of compensation 
to be paid to the adviser by the board.
    20 On-site management.
    a Describe who (owner, site manager, caretaker, board) will perform 
on-site management duties and responsibilities.
    b Describe the duties and responsibilities of the on-site management 
staff.
    c Identify whether the site manager will live in the project in a 
rent-free unit or pay rent, or live off-site.
    d Describe established office hours and indicate where they will be 
posted.
    21 Validity of the management plan. The plan must provide space at 
the end for the following:
    a Date, title, and signature of borrower or borrower's authorized 
representative.
    b Date, title, and signature of the FmHA or its successor agency 
under Public Law 103-354 official approving the plan.

[58 FR 40868, July 30, 1993, as amended at 62 FR 25065, May 7, 1997]

   Exhibit B-2 to Subpart C of Part 1930--Requirements for Management 
                               Agreements

    A completed and executed management agreement must be reviewed and 
approved by the Farmers Home Administration (FmHA) or its successor 
agency under Public Law 103-354 whenever a management agent is to be 
used. A management agreement must be submitted to FmHA or its successor 
agency under Public Law 103-354 for review as part of a project loan 
docket, whenever there is a change of management agents or ownership, or 
when a major revision of an existing agreement is necessary or required.
    1 A written management agreement is required for any project when 
the owner retains a management agent. A management agreement is not 
required when the project is managed by the owner as described in 
paragraph V E 6 of exhibit B of this subpart. However, a written 
management plan is required for all projects new and existing, except 
for on-farm labor housing units where rent is not required. Although the 
adviser to a cooperative board of directors is not the same type of 
agent as those who are now managing rental projects, a written agreement 
between the board and the adviser is required which sets forth their 
relationship and what the adviser is expected to do for the cooperative. 
Exhibits F, F-1, and G of subpart E of part 1944 of this chapter outline 
the functions and responsibilities of an adviser. The agreement may 
follow the content of exhibit B-3 of this subpart.
    2 The management agreement must address how FmHA or its successor 
agency under Public Law 103-354 requirements will be met. The owner may 
delegate to the agent any management duties which are not required to be 
performed by the owner. The owner may delegate selected ownership 
responsibilities, such as requests for review and/or appeal of adverse 
decisions by third parties that affect the owner. However, the owner 
remains totally responsible to FmHA or its successor agency under Public 
Law 103-354 for all aspects of management.
    3 The management plan is the primary management charter, 
constituting a comprehensive description of the policies and

[[Page 282]]

procedures to be followed in managing the project. The management 
agreement describes how the objectives and policies in the management 
plan will be carried out. The agreement should be clear and concise, 
should not merely repeat the management plan, but indicate how the 
management agent will implement the plan.
    4 The management agreement shall describe the management agent's 
organization and staffing structure, management controls, and any 
management company identity of interest relationship(s) such as the 
borrower, vendors, and suppliers of materials, labor, and services. When 
such relationships exist, the management agent shall prepare and sign 
the forms described in paragraph V B 2 a of exhibit B of this subpart as 
``applicant''.
    5 The management agreement sets forth the standards and expectations 
negotiated between the borrower and the management agent. The agreement 
should follow the guidelines of exhibit B-3 of this subpart. Each 
management agreement should be tailored to the specific conditions and 
staffing arrangements of the particular project. The site, design, size 
of the project, and fiscal constraints; market conditions; social 
factors; local law; and business practices are among the elements which 
may require variations to exhibit B-3 of this subpart.

 Exhibit B-3 to Subpart C of Part 1930--Sample Management Agreement for 
Farmers Home Administration (FmHA) or Its Successor Agency Under Public 
       Law 103-354 Financed Multiple Family Housing (MFH) Projects

    This Agreement is made this -- day of ----, 19--, between ------ 
(the ``Owner''), and ------ (the ``Agent'') under the terms and 
conditions set forth herein.
    I General.
    A Appointment and acceptance. The Owner appoints the Agent as 
exclusive agent for the management of the property described in 
paragraph I B of this agreement, and the Agent accepts the appointment, 
subject to the terms and conditions set forth in this agreement.
    B Project description. The property to be managed by the Agent under 
this agreement (the ``Project'') is a housing development consisting of 
the land, buildings, and other improvements which make up Project No. --
--. The Project is further described as follows:
Name____________________________________________________________________
    Location
City:___________________________________________________________________
County:_________________________________________________________________
State:__________________________________________________________________
No. of dwelling units___________________________________________________
Type of units___________________________________________________________
(Family, Elderly, (Mixed, Congregate)
    C Definitions. As used in this agreement:
    1 ``FmHA or its successor agency under Public Law 103-354'' means 
the Farmers Home Administration or its successor agency under Public Law 
103-354, including any successor agencies.
    2 ``Principal Parties'' means the Owner and the Agent.
    3 ``Agent,'' as used throughout this agreement, means the person or 
business entity, including employees at the Agent's office and project 
site, engaged in the task of providing management of a FmHA or its 
successor agency under Public Law 103-354 financed MFH project in 
contractual arrangement with the Owner.
    D Identity of interest. The Agent discloses to the Owner and FmHA or 
its successor agency under Public Law 103-354 any and all identities of 
interest that exist or will exist between the Agent and the Owner, 
suppliers of material and/or services, or vendors in any combination of 
relationship. Forms FmHA or its successor agency under Public Law 103-
354 1944-30, ``Identity of Interest (IOI) Disclosure Certificate,'' and 
FmHA or its successor agency under Public Law 103-354 1944-31, 
``Identity of Interest (IOI) Qualification Form,'' completed by the 
Agent as ``applicant,'' are attached and made part of this agreement.
    E FmHA or its successor agency under Public Law 103-354 
requirements. In performing its duties under this management agreement, 
the Agent will comply with all relevant requirements of FmHA or its 
successor agency under Public Law 103-354. FmHA or its successor agency 
under Public Law 103-354 requirements include preparation of forms and 
reports in the format of prescribed FmHA or its successor agency under 
Public Law 103-354 forms and exhibits.
    F Basic information. As soon as possible, the Owner will furnish the 
Agent with a complete set of ``as built'' plans and specifications and 
copies of all guarantees and warranties relevant to construction, 
fixtures, and equipment. With the aid of this information and inspection 
by competent personnel, the Agency will become thoroughly familiar with 
the character, location, construction, layout, plan, and operation of 
the project, and especially with the physical plant.
    G Compliance with governmental orders. The Agent will take such 
action as it may deem necessary to comply promptly with any and all 
governmental orders or other requirements affecting the project, whether 
imposed by Federal, State, county or municipal authority, subject, 
however, to the limitation stated in paragraph IV D of this exhibit with 
respect to litigation and repairs. Nevertheless, the Agent shall take no 
action

[[Page 283]]

so long as the Owner is contesting, or has affirmed its intention to 
contest, any such order or requirement. The Agent will notify the Owner 
in writing of all notices of such orders or other requirements, within 
72 hours from the time of their receipt.
    H Nondiscrimination. In the performance of its obligations under 
this agreement, the Agent will comply with the provisions of any 
Federal, State or local Fair Housing law prohibiting discrimination in 
housing on the grounds of race, color, religion, sex, familial status, 
national origin, or handicap. Other nondiscrimination provisions include 
title VI of the Civil Rights Act of 1964 (Pub. L. 88-352, 78 Stat. 241), 
Section 504 of the Rehabilitation Act of 1973, and the Age 
Discrimination Act of 1975, as they relate to the FmHA or its successor 
agency under Public Law 103-354 multi-housing program.
    I Fidelity coverage. The Agent agrees to furnish, at its own 
expense, fidelity coverage to the Owner, with copy to the FmHA or its 
successor agency under Public Law 103-354 Servicing Office on the 
employees of the Agent who are entrusted with the receipt, custody, and 
disbursement of any project monies, securities, or readily saleable 
property other than money or securities. The minimum coverage of $---- 
will be provided according to the coverage chart found in paragraph XV 
of exhibit B of this subpart. The Agent will obtain coverage from a 
company licensed to provide coverage in the project locality. Coverage 
will be in force to coincide with the assumption of fiscal 
responsibility by the Agent until that responsibility is relinquished. 
Endorsement listing FmHA or its successor agency under Public Law 103-
354 projects separate from other projects or operations will be obtained 
and made part of the coverage policy or bond. The other terms and 
conditions of the coverage, and the surety thereon, will be subject to 
the requirements and approval of the owner.
    J Bids, discounts, rebates, etc. With prior approval of the owner, 
the Agent will obtain contracts, materials, supplies, utilities, and 
services on the most advantageous terms to the project, and is 
authorized to solicit bids, either formal or informal, for those items 
which can be obtained from more than one source. The Agent will secure 
and credit to the Owner all discounts, rebates, or commissions 
obtainable with respect to purchases, service contracts, and all other 
transactions on the Owner's behalf.
    II Management plan.
    A Description. Attached is a copy of the management plan for the 
project, which provides a comprehensive description of the policies and 
procedures to be followed in the management of the project.
    B Relationship with management plan. The Agent shall conduct its 
management activities in accordance with the policies and procedures set 
forth in the management plan. In addition, the Agent will also carry out 
the tasks and responsibilities set forth in paragraph IV of this 
agreement.
    C Division of duties and common expense. An identification of duties 
and supervisory relationship for project site staff and Agent's office 
staff are described in the management plan as is the pro rata division 
of singularly incurred operating expense common to the Agent and the 
Owner.
    III Budget.
    A Preparation. The Agent shall prepare an original project budget 
for submission to the owner and FmHA or its successor agency under 
Public Law 103-354 for approval. For each subsequent fiscal year the 
Agent shall prepare a new budget.
    B Budget categories. The budget shall be prepared using the format 
and categories of FmHA or its successor agency under Public Law 103-354 
Form 1930-7, ``Multiple Family Housing Project Budget.''
    IV Agent's authorizations. The Owner authorizes the Agent to:
    A Operate the project according to the Owner's management plan and 
in compliance with the Owner's loan agreement (or resolution) with FmHA 
or its successor agency under Public Law 103-354, and applicable FmHA or 
its successor agency under Public Law 103-354 regulations an guidelines.
    B Operate and maintain the project within reasonable tolerance (as 
defined by FmHA or its successor agency under Public Law 103-354) of the 
expense category subtotals in the project budget.
    C Purchase all material, equipment, tools, appliances, supplies and 
services necessary for proper maintenance and repair of the project as 
stipulated by the Owner in the management plan, project budget, and/or 
other form of written documentation.
    D Notwithstanding any of the foregoing provisions or any similar 
provisions that follow, the prior written approval of the Owner will be 
required for any expenditure which exceeds $---- in any one instance for 
litigation involving the project, or labor, materials, or otherwise in 
connection with the maintenance and repair of the project. This 
limitations is not applicable for recurring expenses within the limits 
of the operating budget or emergency repairs involving manifest danger 
to persons or property, or that are required to avoid suspension of any 
necessary service to the project. In the latter event, the Agent will 
inform the Owner of the facts as promptly as possible.
    E Represent the Owner in specific matter related to management of 
the project. (Items such as representing the Owner's interest at appeal 
hearings may be specified here or may be indicated that such 
authorizations will be provided in writing as an addendum when 
appropriate.)
    V Agent's obligations.

[[Page 284]]

    A Management input during and after FmHA or its successor agency 
under Public Law 103-354 processing. The Agent will advise and assist 
the Owner with respect to management planning and input during FmHA or 
its successor agency under Public Law 103-354 loan processing and 
subsequent review. The Agent's specific tasks will be:
    1 Participation in any conference with FmHA or its successor agency 
under Public Law 103-354 officials involving project management.
    2 Preparation and submission of Form FmHA or its successor agency 
under Public Law 103-354 1930-7 as a quarterly report throughout the 
period from initial occupancy after FmHA or its successor agency under 
Public Law 103-354 loan closing until such time as no longer required by 
FmHA or its successor agency under Public Law 103-354. If the management 
is authorized to sign the reports for the owner, a copy of the signed 
report as submitted to FmHA or its successor agency under Public Law 
103-354 will be provided to the Owner.
    3 Participation in the on-site final inspection of the project, 
required by FmHA or its successor agency under Public Law 103-354 prior 
to initial occupancy.
    4 Continuing review of the management plan, for the purpose of 
keeping the Owner advised of necessary or desirable changes.
    B Liaison with architect and general contractor. At the direction of 
the owner during the planning and construction phases, the Agent will 
maintain direct liaison with the architect and general contractor, in 
order to:
    1 Coordinate management concerns with the design and construction of 
the project,
    2 To facilitate completion of any corrective work, and
    3 To facilitate the Agent's responsibilities for arranging utilities 
and services pursuant to paragraph V J of this agreement. The Agent will 
keep the Owner advised of all significant matters of this nature.
    C Marketing. The Agent will market the rental units according to the 
management plan, observe all requirements of the Affirmative Fair 
Housing Marketing Plan, and maintain records of the marketing activity 
for compliance review purposes.
    D Rentals. The Agent will offer for rent and will endeavor to rent 
the dwelling units in the project. The following provisions will apply:
    1 The Agent will make preparations for initial rent-up, as described 
in the management plan.
    2 The Agent will follow the tenant selection policy described in the 
management plan.
    3 The Agent will show the premises and available units to all 
prospective tenants without regard to race, color, national origin, sex, 
religion, familial status, handicap or age; and will provide for 
reasonable accommodation to individuals with handicaps.
    4 The Agent will take and process all applications received for 
rentals. If an application is rejected, the Agent will inform the 
applicant in writing of the reason for rejection. The rejected 
application, with the reason for rejection noted thereon, will be kept 
on file until a compliance review has been conducted. If the rejection 
is because of information obtained from a credit bureau, the source of 
the report must be revealed to the applicant according to the Fair 
Credit Reporting Act. A current list of qualified applicants will be 
maintained.
    5 The Agent will prepare all dwelling leases, parking permits, and 
will execute the same in its name, identified thereon as Agent for the 
Owner. The terms of all leases will comply with the relevant provisions 
of FmHA or its successor agency under Public Law 103-354 regulations and 
State and local law. Dwelling leases will be in a form approved by the 
Owner and FmHA or its successor agency under Public Law 103-354.
    6 The Owner will furnish the Agent with rental and income report 
forms required by FmHA or its successor agency under Public Law 103-354, 
showing rents as appropriate for dwelling units, other charges for 
facilities and services, and income data relevant to determinations of 
tenant eligibility and tenant rents. In no event will the rents and 
other charges be exceeded.
    7 The Agent will counsel all prospective tenants regarding 
eligibility and will prepare and verify eligibility certifications and 
recertifications in accordance with FmHA or its successor agency under 
Public Law 103-354 requirements.
    E Reports. The Agent will furnish information (including occupancy 
reports) as may be requested by the Owner, FmHA or its successor agency 
under Public Law 103-354, and/or the Office of Inspector General from 
time to time with respect to the project's financial, physical, or 
operational condition. The Agent will also prepare and submit:

Form FmHA or its successor agency under Public Law 103-354 1944-8: 
``Tenant Certification''
Form FmHA or its successor agency under Public Law 103-354 1944-29: 
``Project Worksheet for Interest Credit and Rental Assistance''
Form FmHA or its successor agency under Public Law 103-354 1930-7: 
``Multiple Family Housing Project Budget''

    The Agent will assist the owner in initiating or completing all 
additional reporting forms and data prescribed by FmHA or its successor 
agency under Public Law 103-354 affecting the operation and maintenance 
of the project.

[[Page 285]]

    F Collection of rents, security deposits and other receipts. The 
Agent will endeavor to collect when due all rents, charges, and other 
amounts receivable on the Owner's account in connection with the 
management and operation of the project. Such receipts will be deposited 
immediately in the project's general operating account with ------ (name 
of bank or such other financial institution designated by the owner), 
whose deposits are insured by an agency of the Federal Government. The 
Agent will collect, deposit, and disburse security deposits, if 
required, in compliance with any State or local laws governing tenant 
security deposits. Security deposits will be deposited by the Agent in a 
separate account, at a Federally insured institution. This Account will 
be carried in the owner's name and designated of record ``Name of 
Project) Security Deposit as Account.''
    G Accounting system. The Agent must develop a systematic method to 
record the business transactions of the project that appropriately 
reflects the complexity of project operations and the owner's 
requirements. The Agent may be required to implement and use a 
bookkeeping and accounting system acceptable to FmHA or its successor 
agency under Public Law 103-354. The accounts described in paragraph VI 
of this agreement, as a minimum, will be established and regularly 
maintained by the Agent.
    H Enforcement of leases. The Agent will endeavor to ensure full 
compliance by each tenant with the terms of the lease. Voluntary 
compliance will be emphasized. The Agent, using the services of local 
social service agencies when available, will counsel tenants and make 
referrals to community agencies in cases of financial hardship or other 
circumstances deemed appropriate by the Agent. Involuntary termination 
of tenancies should be avoided to the maximum extent consistent with 
sound management of the project. Nevertheless, and subject to the 
relevant procedures prescribed in the management plan, the Agent may 
initiate action to terminate any tenancy when, in the Agent's judgment, 
there is material noncompliance with the lease or other good cause as 
prescribed by FmHA or its successor agency under Public Law 103-354 
regulations for such termination. The tenant must be properly notified 
of his/her right to appeal the proposed action according to FmHA or its 
successor agency under Public Law 103-354 regulations. Attorney's fees, 
and other necessary costs incurred in connection with such actions will 
be paid out of the general operating account as project expenses within 
the itemized limit of the project budget.
    I Maintenance and repair. The Agent will endeavor to maintain and 
repair the project in accordance with the management plan and local 
codes, and keep it in a condition acceptable to the Owner and FmHA or 
its successor agency under Public Law 103-354 at all times. This will 
include, but is not limited to, cleaning, painting, decorating, 
plumbing, carpentry, grounds care, energy conservation measures and 
practices, and such other maintenance and repair work as may be 
necessary, subject to any limitations imposed by the Owner in addition 
to those contained therein.
    Incidental thereto, the following provisions will apply:
    1 Special attention will be given to preventive maintenance, and to 
the greatest extent feasible, the services of regular maintenance 
employees will be used.
    2 The Agent will contract with qualified independent contractors 
acceptable to the Owner for the maintenance and repair of air 
conditioning, heating systems, and elevators, and for extraordinary 
repairs beyond the capability of regular maintenance employees. Any 
identity of interest will be identified in accordance with paragraph V B 
of exhibit B of this subpart.
    3 The Agent will systematically receive and promptly investigate all 
service requests from tenants, take such action as may be justified, and 
keep records of the same. Emergency requests will be received and 
serviced on a 24 hour basis. Serious complaints will be reported to the 
Owner after investigation.
    4 The Agent will advise the Owner of any cost-effective and 
adaptable energy conservation measures or practices that should be used 
in the project. The Agent will encourage their use and will assist the 
Owner during any installation of these measures or institution of 
practices.
    J Utilities and services. In accordance with the Owner's management 
plan, the Agent will make arrangements for water, electricity, gas, fuel 
oil, sewage and trash disposal, vermin extermination, decorating, 
laundry facilities, and telephone service.
    K Insurance. The Owner will inform the agent of insurance to be 
carried with respect to the project and its operations, and the Agent 
will cause such insurance to be placed and kept in effect at all times. 
The Agent will pay premiums out of the general operating account, and 
premiums will be treated as operating expenses. All insurance will be 
placed with companies, on conditions, in amounts, and with beneficial 
interests appearing thereon as shall be acceptable to the Owner and the 
FmHA or its successor agency under Public Law 103-354 provided that the 
same will include public liability coverage, with the Agent designated 
as one of the insured, in amounts acceptable to the Agent as well as the 
Owner and FmHA or its successor agency under Public Law 103-354. The 
Agent will investigate and furnish the Owner with full reports on all 
accidents, claims, and potential claims for damage relating to the

[[Page 286]]

project, and will cooperate with the owner's insurers in connection 
therewith.
    L Taxes, fees and assessments. The Agent shall provide for the 
payment from project funds all taxes, assessments, and government fees 
for the owner promptly when due and payable. The Agent shall also 
evaluate local property taxes to determine if they bear a fair 
relationship to the project value and if they do not, at the direction 
of the Owner, appeal such taxes on behalf of the Owner or assist the 
Owner in the appeal, whichever is required by local jurisdiction or is 
appropriate.
    M Employees and/or services. The Agent will employ persons and/or 
services, (or will manage persons and/or services employed by the Owner) 
to perform duties and responsibilities at the project site as described 
in the management plan. Compensation of such persons and/or services 
will be paid as a direct expense to the project as specified in the 
management plan and this agreement. The Agent will employ sufficient 
resources (staff and/or services) within the Agent's operation to 
fulfill Agent's obligation to the Owner under the terms of this 
agreement.
    VI Project accounts. The Agent will maintain and safeguard the 
Owner's project financial accounts and tenant security deposit accounts 
according to the current requirements set forth in paragraph XIII B 2 of 
exhibit B of subpart C of part 1930 of this chapter, which is part of 
the ``Multiple Housing Management Handbook.''
    VII Agent's compensation, tenure, and identification.
    A Agent's compensation. The Agent will be compensated for its 
services for providing management described under this agreement, and 
the Owner's management plan, by monthly fees, to be paid from the 
general operating account and treated as a project operation and 
maintenance expense. Such fees will be payable on the first day of each 
month for the preceding month. Each monthly fee will be in an amount 
computed as follows:
    (The following are acceptable methods in no order of preference. Any 
other method of compensation will be fully described and inserted in 
this section.) The costs incurred by the Agent for performing the 
specified services listed in this agreement shall be allocated to the 
owner and Agent as outlined in the agreement, management plan, and 
approved project budget.
    1. $---- occupied unit on the first of a month.
    2. % of cash rent collected. (Plan I and full profit)
    3. % of basic rents collected. (Plan II)
    Maximum annual compensation under this agreement and the approved 
project budget shall be $---- year.
    B Term of agreement. This agreement shall be in effect for a period 
of not more than 3 years, beginning on the ---- day of ----, 19----, 
subject, however, to the following conditions:
    1 This agreement will not be binding upon the Principal Parties 
until approved by FmHA or its successor agency under Public Law 103-354.
    2 This agreement may be terminated by mutual consent of the 
principal parties as of the end of any calendar month, provided that at 
least 30 days advance written notice thereof with reasons given is 
submitted to FmHA or its successor agency under Public Law 103-354.
    3 In the event that a petition in bankruptcy is filed by or against 
either of the Principal Parties, or in the event that either makes an 
assignment for the benefit of creditors or takes advantage of any 
insolvency act, the other party may terminate this agreement without 
notice to the other, provided that prompt written notice with reasons 
given for such termination is submitted FmHA or its successor agency 
under Public Law 103-354.
    4 It is expressly understood and agreed by and between the Principal 
Parties that the State Director may terminate this agreement with cause 
upon the issuance of a 30-day written notice of cancellation to each of 
the Principal Parties. It is further understood and agreed that no 
liability will attach to either of the Principal Parties in the event of 
such termination.
    5 Upon termination of this agreement, the Agent will submit to the 
Owner all project books and records and any financial statements 
required by the FmHA or its successor agency under Public Law 103-354. 
After the Principal Parties have accounted to each other with respect to 
all matters outstanding as of the date of termination, the Owner will 
furnish the Agent security, in form and Principal amount satisfactory to 
the Agent, against any obligations or liabilities which the Agency may 
properly have incurred on behalf of the Owner hereunder.
    C Agent's indemnification. Notwithstanding any provision of this 
agreement or any obligation of Agent hereunder, it is understood and 
agreed: that Owner has assumed and will maintain its responsibility and 
obligation throughout the term of this agreement for the finances and 
the financial stability of the project; and that Agent shall have no 
obligation, responsibility, or liability to fund authorized project 
costs, expenses, or accounts other than those funds generated by the 
project itself or provided to the project or to Agent by Owner. In 
accordance with the foregoing, Owner agrees that Agent shall have the 
right at all times to secure payment of its compensation, as provided 
for under paragraph VII A of this agreement, from the operating and 
maintenance account, immediately when such compensation is due and 
without regard to other

[[Page 287]]

project obligations or expenses provided the Agent has satisfactorily 
discharged all duties and responsibilities under this agreement. 
Moreover, Owner hereby indemnifies Agent and agrees to hold it harmless 
with respect to project costs, expenses, accounts, liabilities, and 
obligations during the term of this agreement and further agrees to 
guarantee to Agent the payment of its compensation under paragraph VII A 
of this agreement during the term of this agreement to the extent that 
the project's operating and maintenance account is insufficiently funded 
for this purpose. Failure of Owner at any time to abide by and to 
fulfill the foregoing shall be a breach of this agreement entitling 
Agent to obtain from Owner, upon demand, full payment of all 
compensation owned to Agent through the date of such breach and 
entitling Agent, at its option, to terminate this agreement forthwith.
    VIII Interpretative provisions.
    A This agreement constitutes the entire agreement between the Owner 
and the Agent with respect to the management and operation of the 
project. No change will be valid unless made by supplemental written 
agreement approved by FmHA or its successor agency under Public Law 103-
354.
    B This agreement has been executed in several counterparts, each of 
which shall constitute a complete original agreement, which may be 
introduced in evidence or used for any other purpose without production 
of any of the other counterparts.
    C This agreement is NOT in full force and effect unless and until 
concurred with by FmHA or its successor agency under Public Law 103-354.
    D At all times, this agreement will be subject and subordinate to 
all rights of the FmHA or its successor agency under Public Law 103-354, 
and will work to the benefit of and constitute a binding obligation upon 
the Principal parties and their respective successors and assigns. To 
the extent that this agreement confers rights upon the consenting 
parties, it will be deemed to work to their benefit, but without 
liability to either, in the same manner and work with the same effect as 
though the consenting parties were primary parties to the agreement.
    The Principal Parties [by their duly authorized officers] have 
executed this agreement on the date first above written.
Owner:__________________________________________________________________
By:_____________________________________________________________________
Title:__________________________________________________________________
Agent:__________________________________________________________________
By:_____________________________________________________________________
Title:__________________________________________________________________
    As lender or insurer of funds to defray certain costs of the project 
and without liability for any payments hereunder, the Farmers Home 
Administration or its successor agency under Public Law 103-354 hereby 
concurs with this agreement.
    Farmers Home Administration or its successor agency under Public Law 
103-354
By:_____________________________________________________________________
Title:__________________________________________________________________
Date:___________________________________________________________________
    Attachments: Management plan, Loan resolution or agreement, Identity 
of Interest Disclosure Certificate, Identity of Interest Qualification 
Form.

[58 FR 40868, July 30, 1993, as amended at 59 FR 6886, Feb. 14, 1994]

     Exhibit B-4 to Subpart C of Part 1930--Outline for Prospective 
  Management Agent of a Multiple Family Rental or Labor Housing Project

    Farmers Home Administration (FmHA) or its successor agency under 
Public Law 103-354 expects that Multiple Family Housing (MFH) property 
and program financed by the Agency will be managed to comply with 
authorizing statutes and regulatory requirements in meeting the 
objective of providing decent, safe, and sanitary housing for eligible 
tenants and members.
    The following outline is intended to be a guide that borrowers can 
use in evaluating the level and quality of services that a prospective 
management agent plans to provide in the management of a multiple 
housing project. The borrower is encouraged to add those items it deems 
appropriate and to delete any that do not apply.
    1. Provide your name, address, name of project, location of project, 
and the name of the owner.
    2. Provide information about projects previously or presently 
managed by the management entity and its employees, including 
information relative to default history, mortgage relief history, and 
foreclosure history along with an explanation of the circumstances that 
led to such actions.
    3. Describe your firm including number of main office staff employed 
in the following capacities: supervisory, clerical, maintenance, and 
social services.
    4. Explain where project records will be kept.
    5. Describe your plan for project on-site staff including their 
duties and work frequency.
    6. Give the distance in miles from your home office and the nearest 
branch office, if applicable, to the project.
    7. Describe the accounting system, rent-up procedure, rent 
collection policy, and preventive maintenance program including energy 
conservation you intend to use in the proposed project.
    8. Describe any and all identities of interest as described in 
paragraph V B of exhibit B of this subpart.

[[Page 288]]

    9. Describe the frequency and type of direct supervision to be given 
the site manager.
    10. Give a description of your financial condition, stability, and 
financial resources.
    11. Describe your plan to implement applicable FmHA or its successor 
agency under Public Law 103-354 accounting requirements for the project. 
If you have managed this type of project before, cite those projects as 
an indication of your knowledge of such requirements. If you have not 
managed such projects, indicate your understanding of what needs to be 
done to fulfill such requirements.
    12. Please also describe.
    a. Your plans for handling tenant grievances and appeals, providing 
tenant counseling, and using outside social service agencies.
    b. The extent of your knowledge of FmHA or its successor agency 
under Public Law 103-354 requirements for tenant eligibility, tenant 
certifications and recertifications.
    c. Your plans to train your personnel in the management of FmHA or 
its successor agency under Public Law 103-354 MFH, including training on 
the nondiscrimination and fair housing (reasonable accomodation) 
provisions of the civil rights laws.
    13. Describe the internal controls you will use to safeguard project 
monies, securities, and readily saleable property other than money and 
securities.
    14. Provide evidence of fidelity coverage capacity.
    15. Include where appropriate the following statement: ``I hereby 
certify that there is no close association between the management agent 
and the owner of the above described project in such manner that creates 
a possible conflict of interest.'' If such an association exists (e.g., 
the management agent is a member, stockholder, partner, principal, etc., 
of the borrower organization, familial relationship) explain the 
relationship in detail (this may be combined with item 8 of this 
exhibit).

 Exhibit B-5 to Subpart C of Part 1930--Outline for Owner Who Proposes 
  Owner-Management of a Multiple Family Rental or Labor Housing Project

    Farmers Home Administration (FmHA) or its successor agency under 
Public Law 103-354 expects that Multiple Family Housing (MFH) property 
and program financed by the Agency will be managed to comply with 
authorizing statutes and regulatory requirements in meeting the 
objective of providing decent, safe, and sanitary housing for eligible 
tenants and members.
    The following outline is intended to be a guide that the borrower 
can use in describing the level and quality of services that the 
borrower plans to provide in the management of an MFH project. The 
borrower is encouraged to add those items it deems appropriate and to 
delete any that do not apply. Response to the outline will be used by 
FmHA or its successor agency under Public Law 103-354 to evaluate the 
level and quality of project management planned by the borrower when the 
borrower plans to provide the project management.
    1. Provide name of owner, address, and the name and location of 
project. State the number or rental units in the proposal.
    2. Provide information about your previous projects, regardless of 
the source of financing, including mortgage relief and foreclosure 
history along with an explanation of the circumstances that led to such 
actions.
    3. List names and addresses of management agents who manage your 
previously or presently owned projects, if any.
    4. Describe your understanding of the responsibilities connected 
with owning and managing an MFH project under FmHA or its successor 
agency under Public Law 103-354.
    5. Outline your experience and capabilities in providing housing for 
low- and moderate-income tenants.
    6. Describe your intended tenure of ownership and the extent of 
personal involvement in operating and managing this project.
    7. Describe any identities of interest as described in paragraph V B 
of exhibit B of this subpart.
    8. Describe your intentions and capacity to meet negative cash flow 
situations.
    9. Describe your plans for the management and maintenance of the 
proposed project. If you intend to manage the project, describe your own 
management capacity by answering applicable portions of exhibit B-4 of 
this subpart.
    10. Describe the internal controls you will use to safeguard project 
monies, securities, and readily saleable property other than money and 
securities.

[[Page 289]]

      Exhibit B-6 to Subpart C of Part 1930--Monthly and Quarterly 
                      Project Management Reports

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                         Report or item
      Report of item required               Due date               Prepared by           applicable to           Distribution       References and notes
--------------------------------------------------------------------------------------------------------------------------------------------------------
Project worksheet for interest       Monthly payment date..  All borrowers (Agent).  Each project.........  Copy kept by           Instructions for
 credit and rental assistance (Form                                                                          borrower; original     preparation are in
 FmHA or its successor agency under                                                                          goes to the FmHA or    the FMI for Form
 Public Law 103-354 1944-29).                                                                                its successor agency   FmHA or its
                                                                                                             under Public Law 103-  successor agency
                                                                                                             354 Servicing Office   under Public Law 103-
                                                                                                             with payments.         354 1944-29.
Quarterly Report (Form FmHA or its   Due in FmHA or its      All borrowers (Agent).  Each project until     Copy kept by           Reports will continue
 successor agency under Public Law    successor agency                                discontinued.          borrower. Original     until written notice
 103-354 1930-7, Multiple Family      under Public Law 103-                                                  and one copy goes to   for discontinuance
 Housing Project Budget).             354 Servicing Office                                                   FmHA or its            is received from
                                      by the 20th of month                                                   successor agency       FmHA or its
                                      following each                                                         under Public Law 103-  successor agency
                                      reporting period;                                                      354 Servicing          under Public Law 103-
                                      forward to State                                                       Office; Servicing      354 Servicing
                                      Office by the 30th.                                                    Office to forward      Official.
                                                                                                             original to State      Instructions for
                                                                                                             Office. * State        preparation are in
                                                                                                             Office makes copy      the FMI for Form
                                                                                                             and signed original    FmHA or its
                                                                                                             returned to            successor agency
                                                                                                             Servicing Office.      under Public Law 103-
                                                                                                                                    354 1930-7.
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Signed copy goes to State Office when Servicing Office staff have received delegated approval authority.

Exhibit B-7 to Subpart C of Part 1930--Annual Project Management Reports

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                         Report or item
      Report of item required               Due date               Prepared by           applicable to           Distribution       References and notes
--------------------------------------------------------------------------------------------------------------------------------------------------------
Multiple Family Housing Project      In last quarter of      Borrower (Agent)......  All projects.........  Copy kept by           Instructions for
 Budget Form FmHA or its successor    fiscal year in                                                         borrower. Original     preparation are in
 agency under Public Law 103-354      sufficient time for                                                    and one copy to FmHA   the FMI for Form
 1930-7.                              FmHA or its successor                                                  or its successor       FmHA or its
                                      agency under Public                                                    agency under Public    successor agency
                                      Law 103-354 approval                                                   Law 103-354            under Public Law 103-
                                      before start of next                                                   Servicing Office;      354 1930-7.
                                      fiscal year.                                                           original with
                                                                                                             comments to State
                                                                                                             Office by Servicing
                                                                                                             Office. *State
                                                                                                             Office makes copy
                                                                                                             (with State Office
                                                                                                             comments) and
                                                                                                             returns original to
                                                                                                             Servicing Office.
Housing allowance for Utilities &    Must be submitted with  Borrower (Agent)......  Plan II and rental     Copy kept by           Instructions for
 Other Public Services (Exhibit A-6   Form FmHA or its                                assistance projects    borrower. Original     preparation are in
 to subpart E of part 1944 of this    successor agency                                where tenant pays      and one copy to FmHA   subpart E of part
 chapter).                            under Public Law 103-                           any utilities.         or its successor       1944 of this
                                      354 1930-7.                                                            agency under Public    chapter.
                                                                                                             Law 103-354
                                                                                                             Servicing Office
                                                                                                             with backup data;
                                                                                                             Servicing Office
                                                                                                             returns original to
                                                                                                             borrower after State
                                                                                                             Office approval.*.
------------------------------------

[[Page 290]]

 
                                 Note: All Preceding Items Will Be Submitted Separate From Audit/Verification of Review
--------------------------------------------------------------------------------------------------------------------------------------------------------
Audit Report.......................  Within 90 days          Borrower's CPA or LPA   Projects with 25 or    Copy kept by           Will be submitted
                                      following close of      in accordance with      more units in one or   borrower. Original     separately from
                                      borrower's fiscal       booklet ``U.S.          more projects, or as   and one copy to FmHA   other borrower
                                      year.                   Department of           required by FmHA or    or its successor       management reports.
                                                              Agriculture, Farmers    its successor agency   agency under Public
                                                              Home Administration     under Public Law 103-  Law 103-354
                                                              or its successor        354 State Director.    Servicing Office;
                                                              agency under Public                            one copy to State
                                                              Law 103-354 Audit                              Office.
                                                              Program''.
Multiple Family Housing Borrower     Within 90 days          Borrower (Agent)......  All projects.........  Copy kept by           Instruction for
 Balance Sheet (Form FmHA or its      following close of                                                     borrower. Original     preparation in the
 successor agency under Public Law    borrower's fiscal                                                      and one copy to FmHA   Forms Manual Insert
 103-354 1930-8).                     year.                                                                  or its successor       for Form FmHA or its
                                                                                                             agency under Public    successor agency
                                                                                                             Law 103-354            under Public Law 103-
                                                                                                             Servicing Office.      354 1930-8.
                                                                                                             Servicing Office
                                                                                                             sends original to
                                                                                                             State Office. *State
                                                                                                             Office makes copy
                                                                                                             and returns signed
                                                                                                             original to
                                                                                                             Servicing Office.
Verification of Review (in lieu of   Within 90 days          Qualified individual,   Projects with 24 or    Copy kept by           Instruction for
 audit report) according to this      following close of      independent of the      fewer units.           borrower. Original     preparation in the
 subpart (Form FmHA or its            borrower's fiscal       borrower.                                      to FmHA or its         FMI for Form FmHA or
 successor agency under Public Law    year.                                                                  successor agency       its successor agency
 103-354 1930-8).                                                                                            under Public Law 103-  under Public Law 103-
                                                                                                             354 Servicing          354 1930-8.
                                                                                                             Office; Servicing      Submitted separate
                                                                                                             Office makes one       from annual review
                                                                                                             copy for State         items.
                                                                                                             Office.
--------------------------------------------------------------------------------------------------------------------------------------------------------
*Signed copy goes to State Office when Servicing Office staff have received delegated approval authority.

Exhibit B-8 to Subpart C of Part 1930--Miscellaneous Project Management 
                          Reports or Submittals

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                         Report or item
      Report of item required               Due date               Prepared by           applicable to           Distribution       References and notes
--------------------------------------------------------------------------------------------------------------------------------------------------------
Minutes of Annual Meeting (when      Submit with next Form   Borrower..............  All organizational     Two copies to FmHA or
 applicable).                         FmHA or its successor                           borrowers with         its successor agency
                                      agency under Public                             governing bodies,      under Public Law 103-
                                      Law 103-354 1930-7,                             and all corporations.  354 Servicing
                                      ``Multiple Family                                                      Office; one to be
                                      Housing Project                                                        sent by Servicing
                                      Budget''.                                                              Office to State
                                                                                                             Office.
Energy Audit.......................  Submit with next Form   Energy Auditor........  All projects.........  One copy to Servicing  Exhibit D of this
                                      FmHA or its successor                                                  Office.                subpart.
                                      agency under Public
                                      Law 103-354 1930-7.

[[Page 291]]

 
Request for Rental Assistance (Form  When rental assistance  Borrower (Agent)......  Multiple Family        Original and copy to   Refer to exhibit E of
 FmHA or its successor agency under   is requested.                                   Housing borrowers      Servicing Office;      this subpart for
 Public Law 103-354 1944-25).                                                         and applicants with    submit to State        material to be
                                                                                      tenants paying rent    Office for approval    included with
                                                                                      in excess of 30% of    after Servicing        request.
                                                                                      their adjusted         Office review.         Instructions for
                                                                                      income.                                       preparation are in
                                                                                                                                    Forms Manual Insert
                                                                                                                                    for Form FmHA or its
                                                                                                                                    successor agency
                                                                                                                                    under Public Law 103-
                                                                                                                                    354 1944-25.
Compliance reviews (review           Nov. 1st to Oct. 31st   FmHA or its successor   All Multiple Family    Copy to State Office;  Refer to 1901.204(e)
 conducted within the 1st reporting   of each year.           agency under Public     Housing borrowers.     original retained in   of subpart E of part
 year after the project opens for                             Law 103-354 Servicing                          Servicing Office.      1901 of this
 operation).                                                  Official.                                                             chapter.
(a) Initial reviews (Form FmHA or    The Oct. 31st
 its successor agency under Public    following loan
 Law 103-354 400-8, ``Compliance      closing.
 Review'' (Non-discrimination
 Recipients of Financial Assistance
 through FmHA or its successor
 agency under Public Law 103-354)*.
(b) Subsequent reviews (Form FmHA    Minimum of every 3
 or its successor agency under        years.
 Public Law 103-354 400-8).
Management Plan....................  Start of operations;    Borrower..............  All borrowers except   Original to borrower;  Reviewed annually
                                      update every third                              those with nonrent     copy to Servicing      during annual
                                      year of operation.                              LH projects.           Office.                review.
Management Agreement (Exhibit B-3    Start of management by  Borrower and            All borrowers not      Copies with FmHA or    Reviewed at least
 of this subpart).                    management agent.       management agent.       providing their own    its successor agency   annually during
                                                                                      management.            under Public Law 103-  annual review.
                                                                                                             354 concurrence to
                                                                                                             Borrower, management
                                                                                                             agent and FmHA or
                                                                                                             its successor agency
                                                                                                             under Public Law 103-
                                                                                                             354.

[[Page 292]]

 
Forms FmHA or its successor agency   Start of operations or  Borrower, management    All borrowers........  Original to Servicing  Reviewed at least
 under Public Law 103-354 1944-30,    whenever there is a     agent, individuals,                            Office; copies to      annually during
 ``Identity of Interest (IOI)         change in identity of   vendors or                                     borrower and any       annual review.
 Disclosure Certificate,'' and FmHA   interest relationship.  organizations sharing                          other individual or
 or its successor agency under                                identity of interest                           organization sharing
 Public Law 103-354 1944-31,                                  with the project.                              identity of interest
 ``Identity of Interest (IOI)                                                                                with the project.
 Qualification Form''.
--------------------------------------------------------------------------------------------------------------------------------------------------------
*If initial rent-up has not occurred by initial review, a subsequent review will be due within 1 year following initial occupancy and then every 3
  years.


[58 FR 40868, July 30, 1993, as amended at 59 FR 6886, Feb. 14, 1994]

   Exhibit B-9 to Subpart C of Part 1930--Notice of Authorization To 
                     Withdraw and Use Reserve Funds

    To: Borrower Name, Borrower Address
    Subject: Authorization to Withdraw and Use Reserve Account Funds
    Project Name & Number
    This letter authorizes the withdrawal of $---- from the subject 
reserve account to be used for ------ (describe uses)
 .______________________________________________________________________
     The (This) amount of $---- is a capital 
replacement/improvement expenditure and repayment by increasing the 
reserve payment level is not required; however, the period of deposits 
are extended until the required deposit level is achieved.
     The (This) amount of $---- is an annual operating 
and maintenance expense and must be restored in the reserve account plus 
any required annual reserve payment before any return on investment can 
be authorized subsequent to this date. (During the second to fifth year 
of project operation, add this sentence if the initial operating capital 
has not yet been withdrawn, ``This amount will be deducted from the 
initial operating capital to be withdrawn if said capital is being 
withdrawn during the current budget year, and this amount has not been 
restored to the reserve account.'')
     The (This) amount of $------ is an annual 
recurring type of expense and must be restored in the reserve account 
according to the terms and conditions contained in your special 
servicing work-out plan with Farmers Home Administration or its 
successor agency under Public Law 103-354.
    (Add any additional discussion required.)
    The correct level of funding of the project reserve account after 
this disbursement is (amount) as of (date).
    /s/
    Servicing Official
     Select appropriate paragraph(s).

      Exhibit B-10 to Subpart C of Part 1930--Reserve Account Tally

                           Starting Date: (1)

             Amount Shown on Loan Agreement/Resolution: $(2)

              Contribution: $(3)/Month x 12 = $(4) Annually

--------------------------------------------------------------------------------------------------------------------------------------------------------
                      Planned deposits                   Planned use of reserve                       Actual deposits                 End of
           -------------------------------------------------------------------------------------------------------------------------  fiscal
                                                               Withdrawal                                Interest earned/used          year
  Fiscal     Beginning      Req.       Planned   -------------------------------------            --------------------------------------------  Comments
   year      of fiscal     annual       ending                                          Transfer                                      Ending
                year       deposit     balance        Date       Purpose     Amount    to reserve   Earned on   Transfer    Left in   reserve
                                                   authorized                                        reserve     to GOA     reserve   balance
--------------------------------------------------------------------------------------------------------------------------------------------------------
     (5)         (6)          (7)          (8)           (9)       (10)        (11)        (12)        (13)        (14)       (15)      (16)      (17)
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 293]]

                   Reserve Account Tally Instructions

    1. Enter month and year that cash flow started from rental income.
    2. Enter the ultimate reserve amount to be achieved as shown on the 
loan agreement/resolution (as modified and increased, if applicable).
    3. Enter monthly reserve deposit installment.
    4. Enter yearly reserve deposit installment.
    5. Enter borrower fiscal year for which records apply.
    6. Enter fiscal year beginning balance carried forward from 
preceding fiscal year.
    7. Enter the required annual deposit. If borrower is authorized by 
an approved budget to contribute less than the amount required by the 
loan agreement, enter the reduced amount. For amounts ``restored'' to 
reserve after a previous withdrawal, enter restored amount in this 
column on a separate line and describe in comment column.
    8. Enter the required balance at the end of the borrower fiscal 
year.
    9. Enter the date of authorization for withdrawal from reserve.
    10. Enter the purpose (capital or annual recurring expense); and 
describe in comment column any agreement (see exhibit B-9 of this 
subpart) to restore the withdrawal.
    11. Enter amount of authorized withdrawal.
    12. Enter the actual amount paid into the reserve account.
    13. Enter amount of interest earned on reserve deposit during fiscal 
year.
    14. Enter portion of earned interest transferred to project general 
operating account.
    15. Enter balance of earned interest left (accrued) in the reserve 
account. (Note: At borrower's choice, this amount may be used to help 
meet or increase the annual reserve deposit.)
    16. Enter the reserve balance at the end of the fiscal year.
    Balance at end of last fiscal year.
    Less authorized withdrawal.
    Plus transfer to reserve.
    Plus accrued interest.

    Note: Reconciliation of the current account balance may be 
accomplished by entering the following calculations of the tally sheet.

    (1) Calculate: Gross Potential Reserve (GPR); No. of Deposit 
Installments since start date x $ amount of installments = GPR. Then 
separately,
    (2) Add: regular and extra deposits = $ Additions.
    (3) Subtract: FmHA or its successor agency under Public Law 103-354 
authorized withdrawals = $ Subtractions.
    (4) Result: current balance = $ balance.
    (5) Compare GPR to current balance.

    17. Enter appropriate notes (e.g., withdrawal uses, explain 
discrepancies with other documents).

[[Page 294]]

   Exhibit B-11 to Subpart C of Part 1930--Equal Housing Opportunity 
                  Logotype (Required for Project Sign)
[GRAPHIC] [TIFF OMITTED] TC05SE91.001


[[Page 295]]



 Exhibit B-12 to Subpart C of Part 1930--Farmers Home Administration or 
  Its Successor Agency Under Public Law 103-354 Logotype (Optional for 
                              Project Sign)
[GRAPHIC] [TIFF OMITTED] TC05SE91.002

    Exhibit B-13 to Subpart C of Part 1930--International Symbol of 
 Accessibility (Required for Handicap Parking Space and Along Handicap 
                          Accessibility Route)
[GRAPHIC] [TIFF OMITTED] TC05SE91.003


[[Page 296]]



      Exhibit B- 14 to Subpart C of Part 1930--Sample Waiting List

                                                                                        (1) Project Name.
                                                                                          (2) Location.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                      Applicant information                                                                              Selection criteria
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                     Income level                  Unit size                               Dates
  App.     Date/     Name/      Phone     Race                      Displ.  ---------------------------------------------------------    RA              contacted   Lease    Removal
  No.      time     address      No.      code   HH size             prior                                                             elig.                for       date     date     Comments
                                                                    yes/no      VL       L      M      I     1 br   2 br  3 br  4 br   yes/no            occupancy
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(3)         (4)        (5)       (6)      (7)      (8)      (9)      (10)      (11)    .....  .....  ....    (12)   ....  ....  ....    (13)     (14)       (15)      (16)      (17)      (18)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

                        Waiting List Instructions

    This sample waiting list may be used as a model in developing a 
project waiting list. It combines income level and unit size groupings 
on one page. Separate pages for
different income levels or unit sizes are an option.
    Waiting lists need to be updated periodically by carrying forward 
active applications and removing applications that have become tenants 
or members or have been withdrawn.
This should be done with sufficient frequency so that a substantial 
number of lines on the waiting list are filled with active applications. 
Retired waiting lists must be kept through the next compliance review 
performed by Farmers Home Administration (FmHA) or its successor agency 
under Public Law 103-354.

                          Description of Input:

    1. Project name--Self-explanatory.
    2. Location--Project location name.
    3. Application No.--This is the sequential number of the order by 
which the completed application was received. This may be a continual 
sequence from a given start date or it may be the sequential number in a 
particular year. Example: 93-3 denotes the third application received in 
1993.
    4. Date/time--The date and time a completed application is received.
    5. Name/address--Name of applicant and current street and/or mailing 
address.
    6. Phone number--Applicant's current phone number or a contact 
person's phone number.
    7. Race code--Local management should use a code known to itself of 
the code provided in Form FmHA or its successor agency under Public Law 
103-354 1944-8, ``Tenant Certification.'' Use letters or numbers or a 
combination of both. Do not state or abbreviate racial or ethnic 
descriptions.
    8. Household size--The total number of people who will actually 
occupy a unit.
    9. Blank column--For optional use; for labor housing purposes.
    10. Displaced priority--If applicant possesses a letter of priority 
entitlement (LOPE) issued by FmHA or its successor agency under Public 
Law 103-354 or from other assisted housing enter yes/LOPE. If applicant 
is displaced due to a natural disaster or catastrophe, housing rendered 
uninhabitable, or seized by legal action (other than for illegal 
activity) enter yes/other. Enter no if applicant is not a displacee.

    Note: Section 8 applicants who at time of housing need are 
involuntarily displaced, living in substandard housing, or paying more 
than 50 percent of family income for rent have priority over other 
Section 8 applicants.

    11. Income level--Enter a checkmark under the income level 
determined by income verification.
    12. Unit size--Enter a checkmark under each unit size the applicant 
is qualified to occupy or deems appropriate to its need. Circle the 
checkmark denoting the size requested. Legend: VL--Very low-income, L--
Low-income, M--Moderate-income, I--Ineligible.
    13. Rental assistance eligibility--Indicate whether or not the 
income level qualifies the applicant to receive rental assistance (RA). 
(If RA is being used in the project).
    14. Blank column--For optional use. It could denote Sec. 8 handicap 
status, elderly family status, LH status, or tax credit eligibility 
status.
    15. Dates contacted for occupancy--Enter the dates management 
contacted or attempted to contact the applicant to offer an apartment 
for occupancy. Note the method of contact and the results.
    16. Lease date--Fill in date of Lease to denote that applicant has 
changed to tenant status.
    17. Removal date--Enter date of removal from the waiting list, when 
applicable.
    18. Comments--Self-explanatory.

[[Page 297]]

Exhibit C to Subpart C of Part 1930--Rental and Occupancy Charge and/or 
                        Utility Allowance Changes

                              I. Objectives

    This exhibit prescribes the method of processing changes in the 
monthly rental or occupancy charge rates for tenants or members in 
Farmers Home Administration (FmHA) or its successor agency under Public 
Law 103-354 Rural Rental Housing (RRH), Rural Cooperative Housing (RCH), 
and Labor Housing (LH) projects. This exhibit covers all RRH, RCH, and 
LH loans (except ``nonrental'' LH loans), including those approved 
before the date of this subpart.

                             II. Definitions

    A. Approval official. State Director or designated State and 
Servicing Office staff with delegated authority according to Sec.  
1930.143 of this subpart.
    B. Utility. Sewer, water, trash collection, electricity, natural 
gas, and any other fuel used specifically for cooking, heating, and/or 
cooling.
    C. Rental or occupancy charge rate (rental or occupancy charge). The 
term rental rate means RRH or LH project rent rates that include 
utilities; or net project rent rates plus an allowance for utilities, 
either of which should be equal in value. In RCH projects, the term 
occupancy charge means the charge for occupancy including utilities; or 
the net charge for occupancy exclusive of an allowance for utilities 
according to the operating plan of the cooperative.

                III. Initial Understanding With Borrower

    A. All RRH, RCH, and LH applicants will be informed at the 
application stage of the agency's rental or occupancy charge change 
procedure. All borrowers will be advised that any proposed rent or 
occupancy charge changes must comply with this exhibit. Utility 
allowance changes will comply with this exhibit and exhibit A-6 of 
subpart E of part 1944 of this chapter. This exhibit will also apply to 
rental changes resulting from the Department of Housing and Urban 
Development's (HUD) Automatic Annual Adjustment Factors for units 
receiving section 8 assistance. Request for a rental or occupancy charge 
change will be based on a realistic projected budget for the interim 
year or the ensuing full year.
    B. Rental or occupancy charge change policies.
    1. Rental or occupancy charge rates in projects financed in whole or 
in part by an RRH, RCH, or LH loan may not be raised without FmHA or its 
successor agency under Public Law 103-354 written consent according to 
requirements in loan agreements, loan resolutions, and other instruments 
executed in connection with RRH, RCH, and LH loans.
    2. Changes requiring only prior FmHA or its successor agency under 
Public Law 103-354 review are those which are beyond the borrowers' 
control to cover changes in taxes or utilities, and changes which do not 
result in an increase in the tenant's or member's total shelter cost.
    3. Borrowers are encouraged to have the effective date of needed 
changes coincide with the start of their fiscal year or with the start 
of the season in the case of LH projects occupied on a seasonal basis.
    4. Change requests normally should be made 60 to 90 days prior to 
the end of the borrower's fiscal year.
    5. It is anticipated that rental or occupancy charge changes would 
not be necessary more frequently than once a year.
    6. Changes in rental or occupancy charge rates will apply to all 
units in the project.
    7. Projects with operating budgets that consistently generate a 
surplus of unrestricted cash greater than 10 percent of project yearly 
expense (exclusive of any qualifying refund of 2 percent initial 
operating capital contribution) should reduce their rental or occupancy 
charge rates.
    8. Current tenant or member certifications on Form FmHA or its 
successor agency under Public Law 103-354 1944-8, ``Tenant 
Certification,'' or other form approved by FmHA or its successor agency 
under Public Law 103-354 must be on file in the Servicing Office.
    C. All borrowers are encouraged to participate in the FmHA or its 
successor agency under Public Law 103-354 rental assistance (RA) 
program. However, unless the Administrator notifies State and Servicing 
Offices otherwise, all borrowers with projects meeting the eligibility 
requirements of paragraph II B of exhibit E of this subpart, except full 
profit borrowers, will be automatically treated as having applied for 
rental assistance, since section 530 of title V of the Housing Act of 
1949, as amended, requires such consideration.
    D. Borrowers must accept RA when it is available and it appears that 
a rental or occupancy charge change will cause any very low or low-
income tenant to pay in excess of 30 percent of adjusted monthly income 
for shelter costs. If FmHA or its successor agency under Public Law 103-
354 does not have RA appropriation available for this purpose, the 
borrower is encouraged to use other sources of governmental subsidies. 
The availability or unavailability of governmental subsidies will not 
preclude FmHA or its successor agency under Public Law 103-354 from 
processing a rental or occupancy charge change request. The borrower 
will retain the option of submitting an RA request at any time that it 
appears that any verylow- or low-income tenant cannot pay in

[[Page 298]]

excess of 30 percent of adjusted monthly income in shelter costs, even 
without a rent change action. In such cases, the borrower must apply for 
RA on Form FmHA or its successor agency under Public Law 103-354 1944-
25, ``Request for Rental Assistance,'' unless such form is already on 
file at the FmHA or its successor agency under Public Law 103-354 
Servicing Office.
    E. Even though RA is not available, borrowers are encouraged to 
convert to Interest Credit Plan II to give tenants and members the most 
favorable rental rates possible.

 IV. Borrower's Responsibility in Processing Rental or Occupancy Charge 
    Change Requests Which Change Housing Costs to Tenants or Members

    A. When an RRH, RCH, or LH borrower determines that a project rental 
or occupancy charge change is needed, the borrower must meet or consult 
with the Servicing Office staff, unless such requirement is waived by 
the Servicing Office, to review the following information before the 
``Notice to Tenants (members) of Proposed Rent (Occupancy Charge) and 
Utility Allowance Change,'' exhibit C-1 of this subpart, is posted and 
delivered to the tenants or members:
    1. Facts demonstrating the need and justification for a rental or 
occupancy charge change in accordance with paragraph III A of this EX.
    2. A new operating budget for the borrower fiscal year showing:
    a. Currently approved budget at old rents or occupancy charges.
    b. Actual income and expenses to date.
    c. Proposed budget at proposed new basic rents or occupancy charges.
    d. Proposed budget at proposed new note rate rents or occupancy 
charges (when applicable).
    3. An application for RA is considered to have been automatically 
filed with the Agency. However, the borrower may submit an application 
for RA at any time on Form FmHA or its successor agency under Public Law 
103-354 1944-25, if the borrower's project is an eligible project and 
the proposed change will cause any very low- and low-income tenants or 
members to pay in excess of 30 percent of adjusted monthly income for 
shelter costs.
    4. A new energy audit, if one is due, or a listing of deferred 
improvements identified in a previous energy audit that were performed 
within the past 5-year period according to the requirements of exhibit D 
of this subpart.
    5. Information on actual utility costs for representative units in 
the project and, whenever any utility allowance was approved over 12 
months ago, an updated exhibit A-6 of subpart E of part 1944 of this 
chapter when tenants or members pay their own utilities.
    6. Any other information the borrower believes necessary to justify 
the proposed shelter cost change.
    B. Required actions and timeframes for shelter cost changes. 
Requests for shelter cost changes (i.e. changes to the rent and/or 
utility allowance) may be submitted at any time, however, the Agency 
encourages such requests to be submitted within the last quarter of the 
calendar year in conjunction with the annual budget review.
    1. Agency action.
    a. The Agency must act on any shelter cost change request and take 
one of the following actions within 25 days of its receipt:
    (1) Review the request package and if it is incomplete, return it to 
the borrower/manager, advising what additional information is needed, or
    (2) Request a meeting with the borrower/manager and state the 
proposed meeting date. The request should inform the borrower/manager of 
the purpose of the meeting. When a meeting is held, the Servicing 
Official will either:
    (i) Approve posting of the proposed rental or occupancy charge 
change and advise the borrower in writing to post the notice, or
    (ii) If the proposed change as submitted is not acceptable, the 
Servicing Official and the borrower/manager will arrive at a mutually 
acceptable change, and the Servicing Official will authorize in writing, 
posting of the agreed to revised figure, OR
    (iii) Reject posting of the proposed change, advise the borrower in 
writing to not post the notice and advise the borrower of their appeal 
or review rights in accordance with subpart B of part 1900 of this 
chapter.
    (3) If the borrower/manager does not attend the proposed meeting or 
other mutually agreed date, the change request will be considered 
withdrawn and returned to the borrower/manager, or
    (4) The Servicing Official may waive the meeting requirement and 
authorize the posting subject to any minor changes or other requirements 
listed, if any, or
    (5) Allowing posting of the request by not taking action on the 
request (de facto posting approval).
    b. Once a rental or occupancy charge change has been permitted to be 
posted, the only decision that can be made is to ``approve'' or 
``reject,'' which would be based on material concerns in comments of the 
tenants or members. When the request is rejected, the borrower will be 
advised of any appeal or review rights in accordance with subpart B of 
part 1900 of this chapter.
    2. Borrower action. When approval to post notice is given by FmHA or 
its successor agency under Public Law 103-354, the borrower is required 
to:
    a. Notify tenants or members.

[[Page 299]]

    (1) Tenants or members must be notified in writing at least 60 days 
before the anticipated effective date of change using exhibit C-1 of 
this subpart. The written notice may be delivered by mail or by other 
means. In addition, the borrower must post at least one notice in a 
visible place at the project site.
    (2) Tenant or member comment period. Tenants or members will be 
informed of their right to submit comments to the Servicing Office 
during the 20-day period following the date of the notice. Tenants or 
members will also be informed of their rights to inspect and copy 
records on file with the Agency, which are related to the request, 
throughout the 20-day period.
    b. Notify the Agency. The Agency must be given a copy of the written 
and dated notification which was mailed or delivered to the tenants or 
members.
    3. Implementation timeframes. Shelter cost changes cannot be 
implemented until such time as the tenants or members are informed of 
the changed rates. When increases are involved, tenants or members must 
be informed at least 30 days in advance of their effectiveness or such 
longer time as State law may prescribe. Tenants or members receiving 
notice of a shelter cost increase via the use of exhibit C-1 of this 
subpart will already have been ``informed at least 30 days in advance'' 
and need not receive a second notice provided the final approval action 
(i.e., See exhibit C-2 of this subpart) does not change the shelter cost 
rate established in exhibit C-1.

 V. Determination by FmHA or its successor agency under Public Law 103-
                                   354

    A. Actions by servicing official. The Servicing Official will not 
consider a rental or occupancy charge change application complete and 
acceptable until the borrower has complied with all terms listed in 
paragraph IV of this exhibit. When the application and all attachments 
for the proposed change have been received (including the tenant or 
member comments when notification is required), the Agency will:
    1. Review all the material submitted.
    2. Review a copy of the borrower's latest Form FmHA or its successor 
agency under Public Law 103-354 1944-29, ``Project Worksheet for 
Interest Credit and Rental Assistance.''
    3. Determine if RA is available for an eligible project on behalf of 
the low-income tenants or members. If RA is available, and it is 
apparent from record sources that at least one tenant is eligible for 
RA, the Servicing Office staff must require the borrower to apply for RA 
if an application for RA using Form FmHA or its successor agency under 
Public Law 103-354 1944.25 is not already on file at the Servicing 
Office.
    4. When the change is requested for energy saving improvements 
identified in an energy audit, the Servicing Official shall determine 
the cost effectiveness and financial impact of the proposed improvements 
from information contained in the energy audit. The Servicing Official's 
determination will be made according to paragraph VI of exhibit D of 
this subpart.
    5. When State Office approval is required, the Servicing Office will 
submit to the State Director (see Guide Letter 1930-3 for outlining the 
change request package being submitted):
    a. Appropriate recommendations on the request,
    b. An indication of the number of tenants or members who will need 
RA as a result of the rent changes,
    c. All the material received from the borrower, including tenant or 
member comments or objections at the end of the 20-day comment period, 
and
    d. A short narrative describing the general tone and material 
content of tenant or member comments and concerns.
    6. When a member of the Servicing Office staff is the approval 
official, the documentation required by paragraph V A 5 of this exhibit, 
will be attached to the rent change request.
    7. When the borrower has requested RA, complete Form FmHA or its 
successor agency under Public Law 103-354 1944-25 and forward it to the 
State Director.
    B. Actions by the approval official. When the application, 
attachments, and comments are received, the approval official will 
review the material to determine if the change is justified and act on 
the request within 25 days. The borrower will be notified by the 
Approval Official of the determination within 45 days from the date the 
``Notice to Tenants (Members) of Proposed Rent (Occupancy Charge) and 
Utility Allowance Change'' (Exhibit C-1 of this subpart) is posted, 
otherwise the request will be considered approved.
    1. Approval actions.
    a. When a change is approved, the Approval Official will notify the 
borrower by using exhibit C-2 of this subpart. The notice letter 
(Exhibit C-2 of this subpart) will be prepared using the required and/or 
optional paragraphs as applicable. The reasons for the approved rent 
change should be concise. The notice letter will be mailed or hand 
delivered to each tenant or member and posted in a conspicuous 
places(s).
    b. When the borrower's project is operated on a profit basis and the 
purpose of the rental change is for: justified operating and maintenance 
expense; funding the reserve account; other project expenses; and 
providing or maintaining a profit, the change may be allowed as long as 
eligible tenants can afford the new rental rate.
    2. Disapproval actions. When the Servicing Official determines an 
application for a proposed rental or occupancy charge change is

[[Page 300]]

not justified on the basis of the information submitted, the Servicing 
Official will notify the borrower in writing of the reason(s) why the 
change is not approved. The borrower will be advised of their appeal 
rights in accordance with subpart B of part 1900 of this chapter. Rental 
or occupancy charge changes may not be approved when any of the 
following circumstances exist:
    a. The borrower is able but unwilling: To comply with applicable 
tenant eligibility requirements; the audit and reporting requirements of 
this subpart; or, the conditions set forth in the borrower's loan 
agreement or resolution, interest credit and/or rental assistance 
agreement, promissory note, or mortgage.
    b. The budget for the project reflects sufficient income at the 
present rental or occupancy charge structure to meet operation and 
maintenance expenses which are appropriate and reasonable in amount, 
meet the FmHA or its successor agency under Public Law 103-354 debt 
service requirements, meet the required reserve account deposit, and 
provide a return to the borrower, when appropriate.
    c. The borrower's project is operated on a profit basis and the 
proposed rental change is for purposes other than meeting operation and 
maintenance expenses and debt service (i.e., the purpose is to allow 
excessive profits and the proposed rental change will result in rental 
rates in excess of what eligible tenants can afford).e State Director is 
able to provide RA to the project and the borrower's project is operated 
on a nonprofit basis, or a limited profit basis (as defined in Sec.  
1944.205 of subpart E of part 1944 of this chapter); but the borrower 
has not applied for RA within the most recent period of 180 days prior 
to the rental change request or otherwise already has an application for 
RA on file at the Servicing Office on Form FmHA or its successor agency 
under Public Law 103-354 1944-25.

           VI. Unauthorized Rental or Occupancy Charge Changes

    When a borrower implements a change that does not meet the 
requirements of this exhibit, the borrower will be notified in writing 
that: the change has not been authorized; and the rates must be rolled 
back to the last FmHA or its successor agency under Public Law 103-354 
authorized level. Tenants or members affected by the unauthorized change 
will be given a rebate or credit for the unauthorized amounts 
retroactive to the date of the unauthorized change. Those borrowers that 
fail to comply the provisions of this paragraph will be handled 
according to Sec.  1965.85(d) of subpart B of part 1965 of this chapter 
or paragraph X of this exhibit.

           VII. Annual Adjustment Factors for Section 8 Units

    A. HUD allowance of change.
    1. If the Servicing Official disapproves a rental rate change, or 
approves a lesser amount than permitted by HUD, as a result of HUD's 
annual adjustment factors for units receiving Section 8 assistance, the 
Servicing Official must require the borrower to deposit any excess 
funds, the difference between the FmHA or its successor agency under 
Public Law 103-354 approved note rate rent and the higher HUD authorized 
rental rate, into the reserve account.
    2. If this results in an accumulation of funds in the reserve 
account behind the sum shown in the loan agreement or loan resolution, 
the interest credit reduction on a Section 8/515 project should be 
adjusted or canceled through field office terminals.
    3. This adjustment or cancellation can be done without borrower 
consent for projects with interest credit agreements dated on or after 
October 27, 1980. For projects with interest credit agreements dated 
before October 27, 1980, this cancellation or reduction of interest 
credit may occur only with the borrower's written consent.
    4. When interest credit cannot be canceled or reduced, the Agency 
will collect overage. Overage, for each tenant, in this instance is the 
difference between the FmHA or its successor agency under Public Law 
103-354 interest credit reduced rate rent and the lesser of the FmHA or 
its successor agency under Public Law 103-354 note rate rent or the HUD 
contract rent. The total overage collected should not exceed an amount 
equal to the interest credit authorized by the interest credit agreement 
for the period of time covered by the loan payment installment.
    5. Even though interest credit is canceled or nullified by 
collecting overage, the borrower will still be required to operate on a 
limited profit basis.
    B. HUD disallowance of change. If HUD will not allow an annual 
adjustment of rents, and the project operating budget justifies need for 
rent(s) greater than HUD's contract rent(s), the State Director only may 
authorize conversion from a plan of 1 or 2 percent interest reduction 
(Interest Credit Plan II) to a plan of debt amortization at 1 percent 
interest plus overage up to the HUD contract rent(s) level by meeting 
the requirements of paragraph IV A2e of exhibit B of this subpart.
    C. Reviewing budgets where HUD subsidies are involved. FmHA or its 
successor agency under Public Law 103-354 has the responsibility to 
review and approve project budgets based on need to meet the cash flow 
and expense requirements without regard to HUD's automatic annual 
adjustment. Since HUD and FmHA or its successor agency under

[[Page 301]]

Public Law 103-354 approved rent rates frequently differ, it may be 
necessary to have a 3 column budget in projects with Section 8 Housing 
Assistance Program (HAP) agreements. (Refer to the examples shown in 
paragraph VIID of this exhibit).
    1. When HUD contract rent and the 1 or 2 percent reduced rate are 
the same. In a project where 100 percent of the units receive Section 8 
(100 percent Section 8 projects), and the HUD contract rent rate and the 
1 or 2 percent reduced rate are the same, only the HUD contract rent 
rate column on the budget is needed.
    2. When HUD contract rent falls between the 1 or 2 percent reduced 
rate and the FmHA or its successor agency under Public Law 103-354 note 
rate. In a 100 percent Section 8 project where the HUD contract rental 
rate falls between the 1 or 2 percent reduced rate rent and the note 
rate rent, a 3 column budget showing the 1 or 2 percent reduced rate 
rent, the HUD contract rental rate, and FmHA or its successor agency 
under Public Law 103-354 note rate rent is needed.
    3. When HUD contract rate exceeds the FmHA or its successor agency 
under Public Law 103-354 note rate. In a 100 percent Section 8 project 
without interest credit and where the HUD contract rental rate exceeds 
the note rate rent, the budget should show 2 columns reflecting each 
rent rate. The difference between the two rent rates is considered 
excess funds and is to be deposited in the reserve account.
    4. When part of units are covered by Section 8 HAP contract. In a 
project where only part of the units are under a Section 8 HAP contract, 
a 3 column budget of basic rental rate, HUD contact rental rate, and 
note rate rent is needed. The HUD contract rental rate may fall between 
the basic and note rate, or it may be higher than the note rate rent.
    D. Overage payments and excess income from an interest credit 
agreement:
    1. Overage is the amount by which total rental payments paid or to 
be paid by the tenants or members exceed the total basic monthly rental 
rate. In 100 percent Section 8/515 projects, and Plan II projects, where 
the HUD contract rental rate exceeds the approved 1 or 2 percent (or 
greater percentage in the case of Plan II) reduced rental rate, the FmHA 
or its successor agency under Public Law 103-354 approved rate is the 
required ``basic'' monthly rental rate. Whenever FmHA or its successor 
agency under Public Law 103-354 approves a note rate rent change for a 
lesser amount than the change permitted by HUD, the FmHA or its 
successor agency under Public Law 103-354 Servicing Official must 
require the borrower to deposit any excess funds into the reserve 
account.
    2. Any Section 8 subsidy funds paid by HUD are paid on behalf of the 
tenant or member, and therefore, any Section 8 payments are not 
considered as excess funds until after any benefits provided by the 
interest credit agreement are recovered. Therefore, the following 
applies:
    a. Projects on an Interest Credit plan coded 7 or 8 on Form FmHA or 
its successor agency under Public Law 103-354 1944-7. See figure 1 of 
paragraph VIID 2 a (3) of this exhibit.
    (1) When HUD rate is equal to or less than FmHA or its successor 
agency under Public Law 103-354 note rate. In 100 percent Section 8/515 
projects when the HUD contract rental rate is more than the 1 or 2 
percent reduced rate and is either equal to or less than the FmHA or its 
successor agency under Public Law 103-354 note rate rent, overage will 
be paid to FmHA or its successor agency under Public Law 103-354 in an 
amount equal to the difference between the HUD contract rental rate and 
the 1 or 2 percent reduced rate.
    (2) When HUD rate is greater than FmHA or its successor agency under 
Public Law 103-354 note rate. In 100 percent Section 8/515 projects when 
the HUD contract rental rate is greater than the FmHA or its successor 
agency under Public Law 103-354 note rate rent, overage will be paid to 
FmHA or its successor agency under Public Law 103-354 as in D 1 of this 
paragraph, and the amount equal to the difference between the HUD 
contract rental rate and the FmHA or its successor agency under Public 
Law 103-354 note rate rent will be deposited in the reserve account as 
excess income. In 100 percent Section 8/515 projects, when the HUD 
contract rental rate exceeds the note rate rent the borrower/manager 
needs to use FmHA or its successor agency under Public Law 103-354 Form 
1944-29, part I, items 23 through 29, to document the required deposit 
in the reserve account.
    (3) Figure 1. Projects with 100 percent of units assisted by HUD 
Section 8.

[[Page 302]]

                                Example 1
[GRAPHIC] [TIFF OMITTED] TC05SE91.004


    Note: If the HUD contract rent and FmHA or its successor agency 
under Public Law 103-354 1 or 2 percent reduced rent are the same, then 
the first budget column would not apply.

                                Example 2
[GRAPHIC] [TIFF OMITTED] TC05SE91.005

    b Projects on Interest Credit Plan II and receiving Section 8 
Assistance. See figure 2 of paragraph VII D 2 b (3) of this exhibit.
    (1) Calculating overage. In Section 8/515 projects the overage will 
be the difference between basic rental rate and the note rate rent 
including the income from HUD. The overage will be reported as type 3.
    (2) Depositing excess income in the reserve account. In the cases 
where the HUD contract rental rate exceeds the note rate rent, the 
difference is excess income and will be deposited in the reserve 
account. The borrower/manager should use FmHA or its successor agency 
under Public Law 103-354 Form 1944-29, part I, item 23 through 29, to 
document the required deposit in the reserve account.
    (3) Figure 2. Projects with some HUD Section 8/515 units.

[[Page 303]]

                                Example 1
[GRAPHIC] [TIFF OMITTED] TC05SE91.006

                                Example 2
[GRAPHIC] [TIFF OMITTED] TC05SE91.007

    VIII Rental or Occupancy Charge Control Preemption Policy. In order 
to carry out the provisions of this subpart and to protect a housing 
source in rural areas for very low-, low- and moderate income families; 
the financial obligation of borrowers; and the financial interest of the 
government in such housing, the entire field of rental or occupancy 
charge control that may be exercised by any local rental control board 
or other authority pursuant to State and local law, as it affects 
housing covered by this subpart, is hereby preempted.
    IX Special Servicing Market Rate Rent (SMR) Change: When a Plan II 
or Plan II RA RRH project is experiencing serve vacancies due to poor 
local market conditions, an SMR change may be implemented to attract and 
keep tenants who could pay more than basic rent as part of a workout 
plan according to the provisions of exhibit F of subpart B of part 1965 
of this chapter. An SMR addresses

[[Page 304]]

the situation where some existing and prospective tenants are not 
willing to pay 30 percent of adjusted income or note rate rent because 
the rental rates would exceed those of other rental properties in the 
community. This action may only be taken after supervisory efforts by 
FmHA or its successor agency under Public Law 103-354 and management 
efforts by the borrower have not produced an acceptable level of 
occupancy. For the purposes of this paragraph, market area and community 
are used as defined in paragraph I of exhibit A-8 of subpart E of part 
1944 of this chapter.
    A Eligibility for SMR. Based on borrower documentation and FmHA or 
its successor agency under Public Law 103-354 servicing records, the 
Servicing Official will prepare a written recommendation for borrower 
eligibility for an SMR.
    1 Based on borrower documentation and Servicing Office verification:
    a Over the most recent 6-month period, the monthly vacancy rate has 
averaged at least 15 percent or the project shows financial losses 
considering the following:
    (1) Each month was at least 12 percent vacant, and
    (2) When RA is not available, units subsidized by funds of the 
project/owner will be considered vacant for SMR calculations, or
    (3) The project submits financial records that show a 15 percent 
loss of rents available below basic rent not including project provided 
subsidies, and provided
    (4) The loss of rents available is not a result of management's 
failure to effectively market the units.
    b Comparable market rental rates in the community are lower than the 
previously approved FmHA or its successor agency under Public Law 103-
354 note rate rents. Exhibit A-2 of subpart E of part 1944 of this 
chapter can be used to document comparable market rents.
    c The borrower has aggressively marketed the project including the 
following actions:
    (1) Significant outreach efforts in the community, including (but 
not limited to) contacts listed in the Affirmative Fair Housing 
Marketing Plan.
    (2) The borrower had obtained approval from FmHA or its successor 
agency under Public Law 103-354 for a servicing workout plan, exclusive 
of SMR features, at least 3 months earlier.
    d The borrower complies with FmHA or its successor agency under 
Public Law 103-354 regulations and encourages occupancy through good 
maintenance and positive relations with tenants.
    e The borrower has provided a signed statement agreeing to forego, 
without provision to recoup, the return on initial investment while 
operating with an SMR.
    f The borrower has submitted a project budget on Form FmHA or its 
successor agency under Public Law 103-354 1930-7, ``Multiple Family 
Housing Project Budget,'' with only minimally sufficient operation and 
maintenance expenses. The project budget should continue to fund other 
cash expenditures such as FmHA or its successor agency under Public Law 
103-354 payments and the reserve account, except for the return on 
initial investment which the borrower has agreed to forego according to 
paragraph IX A 1 e of this exhibit.
    2 Based on Servicing Office servicing actions and documentation:
    a The project has been operational for at least 24 months. The 
National Office may make exceptions to this requirement on a case-by-
case basis for extreme hardship.
    b No more than 10 percent of budgeted expenses are reflected in 
unrestricted cash on hand, and reserve account balances do not exceed 
the required accumulation-to-date minus authorized withdrawals.
    c The Servicing Official has reviewed and discussed with the 
borrower the feasibility of using borrower contributed funds, including 
advances, in accordance with paragraph XII C of exhibit B of this 
subpart.
    d The Servicing Official has reviewed and approved a project budget 
with only minimally sufficient operation and maintenance expenses and 
other expenses as specified in paragraph IX A 1 f of this exhibit.
    e The Servicing Official has reviewed any market studies or surveys 
received from MFH loan applicants for the market area and considered any 
information that may conflict with the request for an SMR.
    B Approval of SMR.
    1 The State Director may approve the use of an SMR when the 
conditions listed in paragraph IX A of this exhibit are met.
    2 While a request for an SMR is pending or an SMR is in effect, 
requests to develop new FmHA or its successor agency under Public Law 
103-354 units in the area will be handled in accordance with Sec.  
1944.213(f) of subpart E of part 1944 of this chapter.
    C Implementing an SMR.
    1 After the use of an SMR has been approved by the State Director, 
the Servicing Official will establish an SMR for the project with the 
borrower.
    a The SMR will be obtained by adjusting the ``FmHA or its successor 
agency under Public Law 103-354 Debt Payment'' item in the ``Proposed 
Budget'' column of Form FmHA or its successor agency under Public Law 
103-354 1930-7, to reflect a payment to FmHA or its successor agency 
under Public Law 103-354 amortized at an interest rate which is less 
than the full note rate on the borrower's promissory note. The interest 
rate chosen may never be less than 2 percent.
    b The interest rate of the SMR budget will be set at a level that 
will make project

[[Page 305]]

SMR rental rates comparable with community rental rates. This rate will 
remain constant except as provided in paragraph 4 D of this exhibit.
    2 The initial change to SMR rents or a decrease in SMR rents will be 
accomplished in accordance with the following:
    a The borrower will submit to the Servicing Official, the items 
listed in paragraph IV A 1, 2, 4, 5, and 6 of this exhibit.
    b The Servicing Official shall review the budget and supporting 
documentation, and when found to be acceptable, notify the borrower in 
writing that the budget is approved. A copy of the approved budget will 
be forwarded to the State Director.
    c In addition to any State requirements, the borrower notifies each 
tenant or member of the new rates and/or utility allowance and:
    (1) Include in the notice an explanation of the changes and events 
which necessitated the change. Also, the explanation must specify any 
adverse and/or positive effect the change may have on the tenants or 
members.
    (2) Mail a copy of the notice to the tenant or member at least 30 
days prior to the effective date of the change.
    (3) Offer the tenants or members an opportunity to meet with 
management to discuss the change and review any material contributing to 
the change.
    (4) Inform the tenants or members of their right to request a review 
of the rate change approval decision within 45 days of the date of the 
notice by writing to the next higher FmHA or its successor agency under 
Public Law 103-354 approval official. Until the request is resolved, the 
tenants or members are required to pay the changed amount of rent as 
indicated in the notice of approval.
    3 When an SMR is implemented in a Plan II section 8/515 Project, use 
lines 23 through 29 of Form FmHA or its successor agency under Public 
Law 103-354 1944-29 to report any additional payments to the reserve 
account required when HUD contract rents exceed SMR rental rates.
    D Changing an SMR.
    1 An SMR may be increased or decreased whenever the local market 
conditions warrant, but must be reviewed at least annually.
    a If the local market conditions that caused the need for the SMR 
have not been resolved and corrected, document same and update the 
monitoring timeframes and proceed no further. However,
    b If the local market conditions have changed and change in the SMR 
is warranted, the requirements listed in paragraphs IX D 2, 3, and 4 of 
this exhibit apply.
    2 An SMR must have the SMR rate rent increased by a minimum of 10 
percent per year (or a higher amount if mutually agreed to by the 
borrower and FmHA or its successor agency under Public Law 103-354) when 
the:
    a Vacancy rate drops to 10 percent or below for 6 consecutive 
months, or
    b The borrower does not continue to satisfy the conditions of 
paragraphs IX A 1 c (1) and (2), d, e, or f of this exhibit.
    3 An SMR is completely terminated when the note rate rent is 
regained.
    4 An increase in an SMR will be accomplished in accordance with 
paragraph IV of this exhibit.
    E Disapproval of SMR. When the approval official determines a 
request for an SMR is not justified on the basis of the information 
submitted, the approval official will notify the borrower in writing of 
the reason(s) why the SMR is not approved. The borrower will be advised 
of their appeal rights in accordance with subpart B of part 1900 of this 
chapter.
    X Special Problem Cases. Problem cases which cannot be handled under 
this subpart should be submitted to the National Office for review with 
the State Director's recommended plan of action.

[58 FR 40868, July 30, 1993, as amended at 58 FR 44263, Aug. 20, 1993]

 Exhibit C-1 to Subpart C of Part 1930--Notice to Tenants (Members) of 
      Proposed Rent (Occupancy Charge) and Utility Allowance Change

________________________________________________________________________

Date Posted

    You as a tenant (member) are hereby notified that, subject to 
Farmers Home Administration (FmHA) or its successor agency under Public 
Law 103-354 approval, rents (occupancy charge) and utility allowances 
will be changed effective ----------. (at least 60 days from this 
posting or other timeframe if required by State law)
    -------------------- (Project Owner Name) has filed with FmHA or its 
successor agency under Public Law 103-354, United States Department of 
Agriculture, a request for approval of a change in the monthly rent 
(occupancy charge) rates and/or utility allowances of the (Name of 
apartment complex) for the following reasons:
    1.
    2.
    3.
    4.
    Planned rent (occupancy charge) changes are as follows:

 
                                            Present rent  (occupancy charge)               Proposed rent  (occupancy charge)
             Unit size                                                                                                                 Amount changed
                                              Basic                 Note rate                Basic                Note rate
 
 
 


[[Page 306]]

    Planned utility allowance changes are as follows:

 
                                           Present utility          Proposed utility
              Unit size                       allowance                allowance              Amount changed
 
 
 

    (Use where applicable such as when only basic or note rate rents 
and/or utility allowances are changing and the tenant is receiving 
rental assistance: Since you receive subsidy, your contribution for rent 
(occupancy charge) and utilities will not be changed so long as your 
income and household composition remain unchanged).
    All materials justifying the proposed changes have been reviewed by 
FmHA or its successor agency under Public Law 103-354 and will be made 
available to you and other tenants (members) to inspect and copy at ----
------------ during the hour of ------------.
    You may submit comments or objections in writing to the FmHA or its 
successor agency under Public Law 103-354 Servicing Official during the 
20-day period immediately following the posting of this notice. Comments 
or objections should include reasons or information you feel should be 
considered by the FmHA or its successor agency under Public Law 103-354 
Servicing Official. Your comments or objections must be filed prior to 
------------ with the FmHA or its successor agency under Public Law 103-
354 Servicing Official, ----------------, at the Servicing Office 
located at ----------------,
    These comments will be reviewed by the FmHA or its successor agency 
under Public Law 103-354 Servicing Official and forwarded to the FmHA or 
its successor agency under Public Law 103-354 approval official who will 
decide if the change(s) should be approved.
    Each tenant (member) will be notified in writing of the FmHA or its 
successor agency under Public Law 103-354 decision to approve or deny 
the change. The approved rents and utility allowances will then be 
effective upon the effective date given above. If the approved change 
cannot be made effective by such date, an additional notice will be 
posted and the tenants (members) will be notified in writing that new 
rents (occupancy charges) and utility allowances will be effective at 
the next rent (occupancy charge) due date following the additional 
notice and the FmHA or its successor agency under Public Law 103-354 
approval.

By______________________________________________________________________

 Borrower/Borrower's Representative

     Exhibit C-2 to Subpart C of Part 1930--Notice of Approved Rent 
             (Occupancy Charge) and Utility Allowance Change

Dear
    You are hereby notified that the Farmers Home Administration (FmHA) 
or its successor agency under Public Law 103-354 has reviewed the 
request for a change in shelter costs for the -------- project(s), and 
considered all justifications provided by project management [and 
comments provided by tenants]. The FmHA or its successor agency under 
Public Law 103-354 has approved the following rent (occupancy charge) 
and/or utility allowance rates listed below. The changes for all units 
will become effective on --------, 19----. (Insert effective date shown 
in exhibit C-1 of this subpart or later effective date in accordance 
with last paragraph of exhibit C-1 of this subpart.) The change is 
needed for the following reasons:
    (Insert Reasons for Approval)
    The approved changes are as follows:

 
                                      Present rent (occupancy charge)        Approved rent (occupancy charge)
            Unit size
                                         Basic             Note rate             Basic             Note rate
 
 
 

    The approved utility allowance changes are as follows:

 
                                           Present utility          Proposed utility         Approved utility
              Unit size                       allowance                allowance                allowance
 
 
 

    Should you have any questions or concerns, you may contact FmHA or 
its successor agency under Public Law 103-354. The FmHA or its successor 
agency under Public Law 103-354 Servicing Office address is:
    (Use the following required and/or optional paragraphs where 
applicable.)
    *You must notify the tenants (members) of FmHA or its successor 
agency under Public Law 103-354's approval of the rent (occupancy 
charge) and utility allowance changes by posting this letter in the same 
manner as the ``Notice to Tenants (Members) or Proposed Rent (Occupancy 
Charge) and Utility Allowance Change (Exhibit C-1 of this subpart).'' 
This notification must be posted in a conspicuous place and cannot be 
substituted for the usual written notice to each individual tenant 
(member).
    *This approval does not authorize you to violate the terms of any 
lease (occupancy agreement) you currently have with your tenants 
(members).

[[Page 307]]

    **For those tenants (members) receiving rental assistance (RA), 
their costsfor rent (occupancy charge) and utilities will continue to be 
based on the higher of 30 percent of their adjusted monthly income or 10 
percent of gross monthly income or if the household is receiving 
payments for public assistance from a public agency, the portion of such 
payments which is specifically designated by that agency to meet the 
household's shelter cost. If tenants are receiving Housing and Urban 
Development (HUD) Section 8 subsidy assistance, their costs for rent and 
utilities will be determined by the current HUD formula.
    **Your application for RA units on behalf of eligible tenants 
(members) has been received (or is on hand). Since RA units are not 
available, the approved rate and/or allowance change is subject to your 
acceptance of the RA units should they become available.
    **This rate and utility allowance change is conditioned on the 
requirement that you carry out energy conservation measures and 
operating practices as determined necessary by the project energy audit. 
You will be allowed ------------ days for completion of the work. FmHA 
or its successor agency under Public Law 103-354 assistance may be 
available to finance any needed improvements.
    **You may file an appeal regarding the rate and utility allowance 
change as approved within 45 days of the date of this notice. See 
attached Form FmHA or its successor agency under Public Law 103-354 
1900-1, ``Request for Appeal of Adverse Action,'' for your appeal 
rights. A request for a hearing must be sent to the Area Supervisor, 
National Appeals Staff, (T3address), postmarked no later than (30 days 
from date of this letter).
    *You must inform the tenants (members) of their right to request an 
explanation of the rate and utility allowance change approval decision 
within 45 days of the date of this notice by writing to (insert the name 
and address of next higher FmHA or its successor agency under Public Law 
103-354 approval official). All tenants (members) are required to pay 
the changed amount of rent (occupancy charge) as indicated in the notice 
of approval.
    *Any tenant who does not wish to pay the FmHA or its successor 
agency under Public Law 103-354 approved rent changes may give the owner 
a 30-day notice that they will vacate. The tenant will suffer no penalty 
as a result of this decision to vacate, and will not be required to pay 
the changed rent. However, if the tenant later decides to remain in the 
unit, the tenant will be required to pay the changed rent from the 
effective date of the changed rent.
    Sincerely,

________________________________________________________________________

FmHA or its successor agency under Public Law 103-354 Approving Official
*Required
**Optional, as applicable

            Exhibit D to Subpart C of Part 1930--Energy Audit

    I Objective: It is the objective of the Farmers Home Administration 
(FmHA) or its successor agency under Public Law 103-354 that Multiple 
Family Housing (MFH) financed by the Agency incorporates energy 
conservation measures and operating practices in keeping with the 
National Energy Strategy for a more efficient, less vulnerable, and 
environmentally sustainable energy future. Monitoring of this objective 
will be accomplished by energy audit.
    II Purpose and Intended Outcome:
    A The purpose of this exhibit is to define the FmHA or its successor 
agency under Public Law 103-354 requirements for energy audits. While 
energy audits will review the functioning of energy conservation 
measures initially incorporated in the housing, or previously 
retrofitted, and identify need for any further measures, the main thrust 
of energy audits will be to evaluate and/or recommend operating 
practices used in individual dwelling units and the common areas of a 
project.
    B The intended outcome is to reduce tenant or member utility 
expenses; reduce project operating and maintenance expense; reduce usage 
of subsidy; improve the marketability of units and value of the 
property; conserve national energy resources within cost effectiveness; 
and increase the comfort and enjoyment level of tenants or members.
    III Borrower Responsibility:
    A Initial audit. An initial energy audit is required for each 
project during the third year of operation following completion of 
construction for ``early'' detection and correction of any deficiencies 
in energy conservation measures and/or operating practices.
    B Subsequent audit. A subsequent energy audit is required at least 
within 5 years of the initial audit and at 5-year intervals thereafter, 
to identify if energy conservation improvements are needed.
    C Submission of audit. The borrower shall submit a copy of the 
initial or subsequent energy audit along with the next submission of 
Form FmHA or its successor agency under Public Law 103-354 1930-7, 
``Multiple Family Housing Project Budget.'' The borrower's plan for 
implementing the recommended improvements shall be included in the 
project budget. The submitted copy of the energy audit will be retained 
in the file by the Servicing Office for review during subsequent annual 
reviews. If any of the improvements are deferred due to cost 
ineffectiveness, the borrower shall, each year thereafter, include with 
the annual project budget, an updated

[[Page 308]]

cost feasibility analysis of the deferred improvements, along with the 
borrower's recommendation for implementing the improvements.
    D Cost of audit. An energy audit is beneficial to the operation of 
an MFH project. The cost of the audit is an operational expense. The 
cost should be consistent with the size of the project and comparable to 
the cost of other audits in the area. The cost may be paid from annual 
revenue or from the reserve account depending on the amount.
    IV Performance of Energy Audit:
    A An energy audit shall be an in-depth, on-site inspection of the 
building shell and of the space heating, space cooling, ventilation, and 
water heating equipment for the building. It shall be conducted by a 
qualified energy auditor.
    B Persons shall be considered qualified to perform an energy audit 
if they:
    1 Are authorized under a State Plan approved by the Department of 
Energy (DOE) in accordance with the requirements in 10 CFR part 456,
    2 Are authorized under a Federal Standby Plan promulgated by DOE in 
accordance with the requirements in 10 CFR part 456, or,
    3 Can otherwise demonstrate that they possess the technical skills 
and knowledge necessary to perform energy audits.
    C When persons meeting the qualifications in paragraph IV B of this 
exhibit are not available, the FmHA or its successor agency under Public 
Law 103-354 State Director, with prior National Office approval, may 
institute a plan and method to accomplish the requirements of this 
exhibit using Agency staff and resources, provided it is cost and time 
effective to perform such task.
    D The energy auditor shall inspect the building to determine which 
energy saving measures and operating practices should be improved. The 
energy auditor is expected to summarize the results of this inspection 
and projected cost savings in priority order and include them in a 
written report.
    1 The report shall address the condition or application of the 
following energy saving measures:
    a Caulking and weatherstripping;
    b Central high efficiency air conditioners;
    c Ceiling, wall, and floor insulation;
    d Crawlspace or foundation wall insulation;
    e Duct or pipe insulation;
    f Water heater insulation;
    g Storm or thermal windows and doors;
    h Heat-reflective window and door material;
    i Crawlspace and/or attic ventilation;
    j Energy management devices;
    k Clock thermostats;
    l Furnace efficiency modifications; and
    m Vent dampers for water heaters, furnaces, and boilers.
    2 The report may address the following energy saving measures if 
significant benefits can be shown in the opinion of the energy auditor:
    a Solar domestic hot water systems;
    b Active solar space heating system;
    c Combined active solar space heater and solar domestic hot water 
systems; and
    d Passive solar space heating and cooling systems.
    3 The auditor shall inspect the building and report any improvement 
of energy conserving operating practices that can lead to immediate 
energy savings. These practices include, but are not limited to, the 
following:
    a Furnace efficiency maintenance and adjustments (air filters should 
be changed frequently);
    b Water flow reduction on showers and faucets;
    c Sealing leaks and check insulation of pipes and ducts;
    d Raising thermostat settings in summer and lowering them in winter;
    e Cleaning baseboard convectors and refrigerator coils;
    f Nightime temperature setback;
    g Reducing energy use when apartment is unoccupied;
    h Plugging leaks in attics, basements, and fireplaces;
    i Efficient use of shading; and
    j Reduce water heater temperature setting (should not exceed 120 
degrees Fahrenheit).
    4 The report shall include a list of any recommended energy saving 
measures and/or operating practices. The following information shall be 
provided as applicable:
    a Description;
    b Estimated useful life;
    c Estimated annual energy cost savings in the first year;
    d Cost; and
    e Estimate of any incremental annual operation and maintenance 
costs.
    5 The report shall include a summary of the energy auditor's 
qualifications.
    V Funding: Improvements may be funded from annual project income, 
project reserve, a subsequent loan, borrower's funds, or any other FmHA 
or its successor agency under Public Law 103-354 authorized funding 
which will keep the improvement cost effective. Plans for funding the 
improvements should be included in the borrower's recommendation for 
implementation.
    VI Servicing Official Responsibility:
    A The Servicing Official shall determine the cost effectiveness and 
financial impact of the proposed improvements from information contained 
in the energy audit.
    1 Cost effectiveness. Cost effectiveness shall be determined by 
comparing the value-in-use of the facility with and without the

[[Page 309]]

proposed energy saving improvement. Exhibit D of FmHA or its successor 
agency under Public Law 103-354 Instruction 1922-B, (available in any 
FmHA or its successor agency under Public Law 103-354 office), describes 
the ``value-in-use'' approach that may be used to appraise cost 
effectiveness.
    2 Financial impact. Financial impact shall be determined by 
comparing the estimated net energy and operation and maintenance costs 
savings in the first year to the annual cost of amortizing a loan to 
install the proposed energy saving improvement. A positive financial 
impact occurs when the first year annual savings equals or exceeds the 
annual cost of amortizing any loan(s) for the proposed energy savings 
improvement. Exhibit D-1 of this subpart may be used to organize the 
calculation of the financial impact.
    3 When the identified and/or deferred improvements determined by an 
energy audit obtained within the immediate past 5-year period are found 
to be cost effective and have a positive financial impact, the Servicing 
Official shall recommend or require that any rent or occupancy charge 
increase approval requested by the borrower be conditioned upon 
installation of such energy saving improvement(s).
    4 The Servicing Official may recommend a rent or occupancy charge 
increase for energy saving improvements which are not ``cost effective'' 
whenever the borrower contributes sufficient funds to reduce the cost of 
the improvement so that, on the basis of the FmHA or its successor 
agency under Public Law 103-354 investment only, the improvement is cost 
effective. A positive first year financial impact is not required. Any 
contribution made by the borrower to reduce the cost of the improvement 
to the cost effective limits will not be an eligible contribution for 
computing return on investments. The project reserve may not be utilized 
for such contribution.
    B When the improvements are not cost effective or do not have a 
positive financial impact, and the borrower does not elect to reduce the 
cost of the energy saving measures as described in paragraph VI A 4 of 
this exhibit, the Servicing Official shall recommend deferral of 
implementation of the improvements. Any deferred improvements must be 
analyzed during each subsequent year's annual analysis.
    C A copy of the decision regarding the energy audit will be included 
in the annual reports forwarded to the State Director.
    VII State Director Responsibility: The State Director shall review 
the Servicing Official's recommendations and the decision regarding 
implementation of the proposed improvements and/or practices as a part 
of the annual report review.
    VIII Development: All development will be performed in accordance 
with the requirements of subpart E of part 1944 of this chapter and 
subpart A of part 1924 of this chapter, except that Sec.  1924.6 
(b)(3)(i) of subpart A of part 1924 of this chapter will not apply to 
improvements made by the owner-builder method.
    IX Rent or Occupancy Charge Change: Any rental or occupancy charge 
change necessitated by the improvements must be processed as set forth 
in exhibit C of this subpart.

 Exhibit D-1 to Subpart C of Part 1930--Calculation of Financial Impact 
                             (Energy Audit)

A. First Year Annual Savings (from audit).  $----------
B. Annual Cost of Amortized Loan (from      $----------
 calculation in part D below).
C. Difference (A-B) (if zero or greater,    $----------
 energy saving measure has a positive
 financial impact).
D. Calculation of Annual Cost of Amortized
 Loan for Energy Saving Measure:
  1. Appraisal of Energy Saving Measure     $----------
   (for calculation of appraised value, of
   FmHA or its successor agency under
   Public Law 103-354 Instruction 1922-B
   see exhibit D available in any FmHA or
   its successor agency under Public Law
   103-354 office).
  2. Amortization Factor (for calculation   x----------
   of Amortization Factor, use interest
   rate of Rural Rental Housing and Rural
   Cooperative Housing from FmHA or its
   successor agency under Public Law 103-
   354 Instruction 440.1, exhibit B
   (available in any FmHA or its successor
   agency under Public Law 103-354
   office); the Useful Life or weighted
   average of Full Life for more than one
   energy saving measure from the energy
   audit; and the Amortization Factor from
   FmHA or its successor agency under
   Public Law 103-354 Instruction 440.1,
   (available in any FmHA or its successor
   agency under Public Law 103-354 Office).
  3. Annual Cost (Appraisal x Amortization  $----------
   Factor enter answer in part B above).
 


[[Page 310]]

     Exhibit E to Subpart C of Part 1930--Rental Assistance Program

    I General. The objective of the rental assistance (RA) program is to 
reduce rents paid by low-income households. This exhibit sets forth the 
policies and procedures and delegates authority under which RA will be 
extended to eligible tenants occupying eligible Rural Rental Housing 
(RRH) and eligible members occupying Rural Cooperative Housing (RCH) 
projects financed by the Farmers Home Administration (FmHA) or its 
successor agency under Public Law 103-354. For the purposes of this 
exhibit, the term ``tenant'' also means ``member.'' This exhibit also 
applies to Farm Labor Housing (LH) projects when the borrower is a 
broadly-based nonprofit organization, nonprofit organization of 
farmworkers, or a State or local public agency. RA will supplement the 
benefits available to tenants under the interest credit program outlined 
in exhibit H to this subpart.
    II Definitions.
    A Eligible tenants. Any very low-income, or low-income household 
meeting the following requirements:
    1 The household adjusted annual income must not exceed the very low- 
or low-income limit established for the area as indicated in Appendix 9 
of HB-1-3550 (available in any Rural Development office).
    2 The household must be unable to pay the approved rental rate plus 
utility allowance within a portion of their income not exceeding the 
highest of:
    a 30 percent of their adjusted monthly income;
    b 10 percent of gross monthly income; or
    c If the household is receiving payments for public assistance from 
a public agency, the portion of such payments which is specifically 
designated by that agency to meet the household's shelter cost.
    3 The household must meet the occupancy policy established for the 
project and approved by FmHA or its successor agency under Public Law 
103-354 according to paragraph VI D 2 of exhibit B of this subpart.
    4 The household must have an unexpired and signed Form FmHA or its 
successor agency under Public Law 103-354 1944-8, ``Tenant 
Certification,'' on file with the borrower.
    B Eligible project.
    1 All projects must operate under Interest Credit Plan II RA to be 
eligible to receive RA, except LH loans, direct RRH, and insured RRH 
loans approved prior to August 1, 1968, which must operate under Plan 
RA. To be eligible for RA the project must have a:
    a RRH insured or direct loan made to a broadly-based nonprofit 
organization, or State or local agency, including Senior Citizen 
Housing;
    b RRH insured loan to an individual or organization who has or will 
execute a loan resolution or loan agreement agreeing to operate the 
housing on a limited profit basis as defined in Sec.  1944.205 of 
subpart E to part 1944 of this chapter;
    c RCH insured or direct loan; or
    d LH loan, or an LH loan and grant combination, made to a broadly-
based nonprofit organization or nonprofit organization of farmworkers or 
a State or local public agency.
    2 Borrowers may utilize the Department of Housing and Urban 
Development (HUD) Section 8 Housing Assistance Payments Program and FmHA 
or its successor agency under Public Law 103-354 RA in the same project. 
In such cases, Form FmHA or its successor agency under Public Law 103-
354 1944-7, ``Multiple Family Housing Interest Credit and Rental 
Assistance Agreement,'' for the project will reflect coding for ``Plan 
II RA.''
    3 Borrowers will provide RA to only those eligible tenants occupying 
LH, RCH, or RRH rental housing units financed by FmHA or its successor 
agency under Public Law 103-354.
    C Operational project. A completed RRH, RCH, or LH project financed 
by FmHA or its successor agency under Public Law 103-354 which has been 
opened for occupancy and has at least been partially occupied by 
tenants.
    D New projects. Newly constructed or substantially rehabilitated 
RRH, RCH, or LH project financed by FmHA or its successor agency under 
Public Law 103-354. For new construction RA purposes, if further means 
before any units are occupied.
    E Rental assistance. RA, as used in this exhibit, is the portion of 
the approved shelter cost paid by FmHA or its successor agency under 
Public Law 103-354 to compensate for the difference between the approved 
shelter cost and the monthly tenant contribution as calculated according 
to paragraph IV A 2 c of exhibit B to this subpart. When the household's 
monthly gross tenant contribution is less than the approved utility 
allowance which is billed directly to and paid by the tenant, the owner 
will pay the household that difference according to paragraph IX A 2 of 
this exhibit.
    F RA agreement. The term refers to Form FmHA or its successor agency 
under Public Law 103-354 1944-27, or its predecessor. Form FmHA or its 
successor agency under Public Law 103-354 444-27 and Form FmHA or its 
successor agency under Public Law 103-354 444-27A.
    G RA obligation. The obligation consisting of the number of RA units 
and associated dollar amounts of rental assistance specified in a 
particular RA agreement.
    H RA obligation number. The identification number associated with a 
particular RA obligation.

[[Page 311]]

    I Replacement units. RA units which replace RA units in RA 
agreements expiring because obligated funds have been fully disbursed.
    J Servicing units. RA units which increase the number of RA units 
resulting in initial or additional RA agreements.
    K Shelter cost. The approved shelter cost consists of basic or note 
rate rent plus utility allowance when used. Basic or note rate rent must 
be shown on the project budget for the year and approved according to 
Sec.  1930.122(b)(1). Utility allowances, when required, are determined 
and approved according to part 1944, subpart E, exhibit A-6, of this 
chapter. Any changes in rental rates or utility allowances must be 
processed according to exhibit C of this subpart.
    L Utility allowances. The allowance approved by FmHA or its 
successor agency under Public Law 103-354 according to exhibit A-6 of 
subpart E of part 1944 of this chapter to cover the cost of utilities 
which are payable directly by the households.
    III Utilization of RA. All borrowers with eligible projects as 
defined in paragraph II B of this exhibit are encouraged to utilize the 
RA program and receive RA payments on behalf of eligible tenants. 
Generally, the borrower, or the borrower's approved management agent, 
will initiate the processing of a RA application.
    IV Priority of RA applications.
    A State of allocations. The National Office may establish a State 
quota on the number of RA units that may be approved and obligated in 
any fiscal year. The State Director will limit the approval of RA to no 
more than the number of units allocated to the State. Unless otherwise 
stated by the National Office, the State allocation will indicate the 
number of RA units for operational projects and the number of RA units 
to be used for new construction.
    B Allocation to projects within a State. The State Director will 
distribute any RA units allocated to the State according to any specific 
guidance established by the National Office. When no specific guidance 
is established by the National Office the State Director will approve 
requests for RA to projects according to the provisions of this exhibit. 
Priority in allocating RA units will be as follows:
    1 Replacement units: The State Director will distribute or reserve 
RA units and give priority to projects needing replacement units before 
any initial or additional units are allocated to other new or 
operational projects. The State Director should ascertain how many RA 
units are expected to expire in each Servicing Office during the current 
fiscal year and the first quarter of the following fiscal year.
    2 New housing: Any RA units allocated to the State for new 
construction will be distributed on a priority basis in the following 
order:
    a Applications for RRH and RCH loans where the market survey 
information indicates that a large percentage of the prospective tenants 
needed RA. When the number of RA units available is inadequate to cover 
all such applications, the units will be distributed giving priority to 
those projects having highest need located in areas identified as having 
the greatest need for low-income housing, and selected for funding in 
accordance with Sec.  1944.231 of subpart E of part 1944 of this 
chapter.
    b For LH projects, RA units will be allocated by the National Office 
from the National Office reserve on a case-by-case basis at the time the 
projects are considered for funding at the National Office level.
    3 Operational housing: When the National Office provides an 
allocation for servicing RA units, the State Director will distribute 
them to operational RRH, RCH, and LH projects based on Form FmHA or its 
successor agency under Public Law 103-354 1944-25, ``Request for Rental 
Assistance,'' that have been submitted by eligible borrowers. Priority 
will be given to projects based on this exhibit and administrative 
directives issued by the National Office under the annual RA allocations 
or other authorizations or guidelines established through the budget 
process. The National Office will notify the State Director each year of 
any specific date by which all requests for RA must be submitted to FmHA 
or its successor agency under Public Law 103-354 for consideration.
    V Processing of RA applications. All requests for RA will be 
processed according to this paragraph and may be approved by the State 
Director.
    A Operational projects.
    1 A borrower with an eligible project in which there are tenants 
paying in excess of 30 percent of their adjusted income for rent should 
be encouraged to have on file a Form FmHA or its successor agency under 
Public Law 103-354 1944-25 with the Servicing Official to avoid delays 
in processing future servicing requests. Once a Form FmHA or its 
successor agency under Public Law 103-354 1944-25 is on file at the FmHA 
or its successor agency under Public Law 103-354 Servicing Office, 
subsequent submittals of the form will not be necessary to support 
subsequent approvals of RA by FmHA or its successor agency under Public 
Law 103-354. A separate Form FmHA or its successor agency under Public 
Law 103-354 1944-25 will be submitted for each project. The borrower 
should include the following with each request.
    a Form FmHA or its successor agency under Public Law 103-354 1944-
29, ``Project Worksheet for Interest Credit and Rental Assistance,'' 
with all columns completed for each tenant in the project. (All Forms 
FmHA

[[Page 312]]

or its successor agency under Public Law 103-354 1944-8 must be 
current.)
    b Approved or proposed budget for the year on Form FmHA or its 
successor agency under Public Law 103-354 1930-7, ``Multiple Family 
Housing Project Budget,'' with exhibit A-6 of subpart E of part 1944 of 
this chapter attached, when applicable.
    2 Prior to the full disbursement of obligated funds on any 
agreement, a borrower or approved management agent may submit a request 
for replacement RA units. The request should contain all the material 
requested in paragraph V A 1 of this exhibit and should be submitted no 
later than 3 months prior to the expected full disbursement of obligated 
funds, to allow time for processing the request. The number of 
replacement units may not exceed the number of units that are expiring. 
Once replacement units have been requested, additional units may not be 
requested until Form FmHA or its successor agency under Public Law 103-
354 1944-51, ``Multiple Family Housing Obligation-Fund Analysis,'' is 
received obligating the replacement units. Form FmHA or its successor 
agency under Public Law 103-354 1944-51 requesting the additional units 
must be coded sequentially as required in paragraph V C 5 of this 
exhibit.
    3 The Servicing Official will review the budget, exhibit A-6 of 
subpart E of part 1994 of this chapter, Form FmHA or its successor 
agency under Public Law 103-354 1944-29, and Form FmHA or its successor 
agency under Public Law 103-354 1944-25 submitted by the borrower to 
assure that the items are complete and accurate. The Servicing Official 
will complete Form FmHA or its successor agency under Public Law 103-354 
1944-25 and submit all data provided by the borrower to the State 
Director with appropriate comments and recommendations.
    B Projects to be funded.
    1 Applicants requesting funding for new projects who are planning to 
utilize the RA program, should submit a completed Form FmHA or its 
successor agency under Public Law 103-354 1944-25 to the Servicing 
Official when submitting a preapplication or application for funding.
    2 The number of units of RA requested should be based on the market 
data for the area, the proposed rental rates as reflected in a budget 
for the project, and the income levels of the prospective tenants.
    C State Director action on requests for RA. Only the State Director 
or delegated members of the State Office staff may approve or disapprove 
RA requests.
    1 Approval actions. When the State Director determines that RA can 
be obligated or transferred, part III of Form FmHA or its successor 
agency under Public Law 103-354 1944-51 for obligation, or Form FmHA or 
its successor agency under Public Law 103-354 1944-55, ``Multiple Family 
Housing Transfer of Rental Assistance,'' for transfers, will be prepared 
and distributed according to the Forms Manual Insert (FMI). Form FmHA or 
its successor agency under Public Law 103-354 1944-27, ``Rental 
Assistance Agreement,'' will not be executed or amended until the 
obligation or transfer is verified by the Finance Office. The State 
Office will verify the obligation or transfer via the computer terminal 
on the day following the request.
    2 Completing RA agreements. When the State Director verifies that RA 
units have been obligated or transferred by the Finance Office, the 
State Director will forward a copy of either Form FmHA or its successor 
agency under Public Law 103-354 1944-51 or Form FmHA or its successor 
agency under Public Law 103-354 1944-55 to the Servicing Official. The 
Servicing Official will complete Form FmHA or its successor agency under 
Public Law 103-354 1944-27, and attach the appropriate copies of Form 
FmHA or its successor agency under Public Law 103-354 1944-51 or Form 
FmHA or its successor agency under Public Law 103-354 1944-55 according 
to the FMI.
    a Initial RA agreements. The Servicing Official will prepare the 
original and two copies of Form FmHA or its successor agency under 
Public Law 103-354 1944-27. When the project does not have a Form FmHA 
or its successor agency under Public Law 103-354 1944-7 in effect, the 
Servicing Official will prepare an original and three copies. The 
Servicing Official and the borrower will then execute the originals and 
all copies of Form FmHA or its successor agency under Public Law 103-354 
1944-27 and Form FmHA or its successor agency under Public Law 103-354 
1944-7. The forms will be distributed according to their FMIs.
    b Replacement or modified RA agreements. When a Form FmHA or its 
successor agency under Public Law 103-354 444-27 initiated prior to May 
1, 1985, is replaced or modified, a new Form FmHA or its successor 
agency under Public Law 103-354 1944-27 will be prepared and distributed 
according to the FMI. For every replacement or modification on or after 
May 1, 1985, the original and all copies of the affected RA agreement 
will be noted, assembled and distributed by the Servicing Official 
according to the FMI.
    3 Modification of an existing RA agreement. After any request for a 
change in the amount of RA has been obligated, a copy of Form FmHA or 
its successor agency under Public Law 103-354 1944-51 or Form FmHA or 
its successor agency under Public Law 103-354 1944-55 will be attached 
to Form FmHA or its successor agency under Public Law 103-354 1944-27 
and distributed according to the FMI. A new FmHA or its successor agency 
under Public Law 103-354 1944-7 is not required.
    4 Denial of RA Request.

[[Page 313]]

    a If RA funds are available but cannot be provided due to a 
determination of ineligibility, the State Director will inform the 
borrower, in writing, of the reasons. The borrower will be given appeal 
rights in accordance with subpart B of part 1900 of this chapter in such 
cases. When RA funds are not available from the State's allocation or 
the National Office Reserve the decision will be considered 
nonappealable, however, the decision is still reviewable, under subpart 
B of part 1900 of this chapter.
    b Should RA not be available for lack of appropriation to replace an 
expiring RA obligation, the State Director will advise the borrower to 
notify tenants of the increase to their contribution to rent following 
the notification requirements of exhibit C of this subpart. Tenants who 
cannot afford the increased rent shall be given the opportunity to quit 
the lease and vacate the project without penalty.
    5 RA obligation numbers.
    a Each RA obligation will be assigned a six digit RA obligation 
number by the Approving Official as follows:
    (1) First two digits--Fiscal year (FY) in which the funds were 
obligated (i.e., 85, 86, etc).
    (2) Second two digits--Numbers in sequential order for each fiscal 
year starting with 01 (i.e. 93-01, 93-02, 94-01, 94-02).
    (3) Third two digits--All obligations will be coded 00.
    b RA obligation obligated before FY 1985 will be coded as follows:
    (1) First two digits--FY initial obligation was made on the project 
(i.e., 78, 79, 80, etc.)
    (2) Second two digits--Relate to the pre-Automated Multi-housing 
Accounting System conversion loan number to which the RA obligation was 
processed.
    (3) Third two digits--Indicate the number of modifications plus 1. 
(Form FmHA or its successor agency under Public Law 103-354 1944-27 with 
two modifications on September 30, 1984, will be designated ``03.'')
    c The Finance Office will track RA obligations and undisbursed 
balances by number.
    VI Terms of the RA Agreement.
    A Effective date. Each Form FmHA or its successor agency under 
Public Law 103-354 1944-27 will be effective the first day of the month 
in which it is executed. If assistance is granted to a project under an 
appeal according to paragraph XVI of this exhibit, the effective date 
will be retroactive to the first day of the month in which the 
assistance was denied, provided the borrower agrees to make any 
appropriate refunds to tenants who would have been entitled to RA during 
the retroactive period.
    B Term.
    1 Twenty-year RA agreement. Twenty-year agreements were authorized 
during the initial years of the RA program through FY 1982. Twenty-year 
agreements were restricted to new projects or modifications of existing 
20-year agreements. The agreement is effective for 20-years from the 
effective date of the agreement. This agreement may be modified or 
terminated in accordance with the terms of the RA agreement. The 
agreement will expire when the funds obligated for the RA units 
described in section 1 of Form FmHA or its successor agency under Public 
Law 103-354 1944-27 are fully disbursed. This can be any time before or 
after the end of the 20-year term. Upon expiration of the agreement, a 
replacement agreement may be executed. If a replacement agreement is 
considered, it will be for a 5-year period.
    2 Five-year RA agreement. Five-year agreements may be used for 
operational projects, or for new projects when 20-year units are not 
available. The agreement shall be effective for 5 years from the 
effective date of the agreement. This 5-year agreement may be modified 
or terminated in accordance with the terms stated on Form FmHA or its 
successor agency under Public Law 103-354 1944-27.
    The agreement will expire when the funds obligated for the RA units 
described in section 1 of Form FmHA or its successor agency under Public 
Law 103-354 1944-27 are fully disbursed. This can be any time before or 
after the end of the 5-year period.
    3 Modification of RA agreements. Forms FmHA or its successor agency 
under Public Law 103-354 1944-27 may be modified:
    a To add or subtract RA units assigned to the project through 
obligation, through transfer from another RA obligation, or as an 
incentive to avert prepayment.
    b To reinstate a suspended RA obligation(s) to a new borrower in the 
same project after a voluntary conveyance or a foreclosure and a credit 
sale within the Multiple Family Housing (MFH) program; or
    c To transfer a suspended RA obligation(s) to a new borrower and a 
different project after liquidation of the project assets or after the 
loan is paid in full.
    4 Amendment of RA agreements.
    a Any existing RA obligation executed prior to February 15, 1983, 
which will have a remaining obligation balance at the end of the 5-year 
or 20-year expiration date stated in section 9, ``Term of the 
Agreement,'' may be modified by the use of Form FmHA or its successor 
agency under Public Law 103-354 444-27A, ``Amendment to Rental 
Assistance Agreement.'' The amended agreement will expire when the 
obligated funds are fully disbursed.
    b Any existing RA agreement on earlier Form FmHA or its successor 
agency under Public Law 103-354 444-27 or exhibit D-2 (of now obsolete 
FmHA or its successor agency under Public Law 103-354 Instruction 444.5) 
containing an occupancy standard may be amended by mutual consent of the 
borrower

[[Page 314]]

and FmHA or its successor agency under Public Law 103-354 when a new 
occupancy policy for the project is approved according to paragraph VI D 
2 of exhibit B of this subpart. To amend the form:
    (1) Delete section 5 of the original and the borrower's copy and 
have the deletion dated and initialed by the appropriate FmHA or its 
successor agency under Public Law 103-354 official and the person(s) 
authorized to sign for the borrower.
    (2) Type the following statement on the reverse of the original 
agreement and the borrower's copy and have the statement dated and 
initialed by the appropriate FmHA or its successor agency under Public 
Law 103-354 official and the person(s) authorized to sign for the 
borrower. ``Amended (date) ------ by authority of paragraphs VI B 4 of 
exhibit E and VI D 2 a of exhibit B of subpart C of part 1930, chapter 
XVIII, title 7, Code of Federal Regulations.''
    5 Replacement RA obligations. Replacement RA obligation(s) for 
either 5-year or 20-year obligations will be for a 5-year period. All 
requirements in paragraphs VI B 2 and 3 of this exhibit apply. Expiring 
RA obligations and replacement RA obligations may run concurrently for a 
period of 30-50 days so any undisbursed obligation balance on the 
expiring RA agreement can be liquidated.
    VII Recordkeeping Responsibilities.
    A The Finance Office (FO) will track the use of RA obligation and 
ensure that RA obligation is not disbursed or credited to a borrower's 
account in excess of the RA obligation. Quarterly and annually, the FO 
will provide the Servicing Official with an RA payment and obligation 
status report for each project. The annual version of this report will 
be filed in position 2 of the project case file and maintained 
indefinitely.
    B The Servicing Official will notify the borrower to apply for 
replacement RA obligation when the RA undisbursed balance reaches a 
level sufficient to cover approximately 6 months of RA requests. This 
figure will be based on the project's average monthly request for RA.
    VIII Responsibilities of Borrower in Administering the RA Program.
    The borrower and management agent for each project receiving RA 
should fully understand the responsibilities and requirements of 
carrying out the program. The following guidelines will be followed:
    A RA payments will not be made directly to eligible tenants 
receiving RA except as specified in paragraph IX A of this exhibit. The 
borrower will maintain an accurate accounting of each tenant's utility 
allowance and payments made to tenants. All other RA payments will be 
recorded as a credit to the tenant's monthly rental payment.
    B The borrower must submit Form FmHA or its successor agency under 
Public Law 103-354 1944-8 for each tenant as required in paragraph VII F 
of exhibit B of this subpart.
    C The incomes reported by the tenants must be verified by the 
borrower in accordance with paragraph VII of exhibit B of this subpart.
    D Borrowers utilizing RA must comply with Sec.  1930.122(b)(1) of 
this subpart. RA will not be approved for a project until the operating 
budget has been approved by the FmHA or its successor agency under 
Public Law 103-354 State Office or the Servicing Official. Servicing 
Officials, with assistance from the State Office, must closely supervise 
and assist borrowers in complying with all accounting and management 
requirements.
    E A borrower participating in the RA program must have an FmHA or 
its successor agency under Public Law 103-354 approved lease with the 
assisted household. All leases must comply with the provisions of 
paragraph VIII of exhibit B of this subpart.
    F The borrower will be responsible to FmHA or its successor agency 
under Public Law 103-354 for any errors made in the administration of 
the RA program which are made by the borrower or the borrower's 
authorized management agent. Errors in computation or other unauthorized 
use of RA will require, at a minimum, the repayment of any incorrectly 
advanced RA funds. If the error or unauthorized use of RA appears to be 
deliberate or intentional, the State Director will refer the case to the 
Office of Inspector General according to FmHA or its successor agency 
under Public Law 103-354 Instruction 2012-B (available in any FmHA or 
its successor agency under Public Law 103-354 office).
    IX Handling Utility Allowances.
    A Payment of utilities.
    1 When the tenant is billed directly for utilities, rent paid by the 
tenant receiving RA will be the difference between the established 
utility allowance and the portion of income cited in paragraphs II A 2 
a, b, or c of this exhibit.
    2 When utilities are paid by the household receiving RA and the 
portion of income cited in paragraphs II A 2 a, b, or c of this exhibit 
is less than the allowance for utilities, the borrower will pay the 
household the difference between the utility allowance and one of those 
limits of the household's adjusted monthly income.
    3 In a project where the owner pays all utilities, the tenant rent 
will be the portion of income cited in paragraphs A 2 a, b, or c of this 
exhibit up to the approved rent for the rental unit being occupied.
    B Determining the allowance. The utility allowance will be 
determined and recorded by the use of exhibit A-6 of subpart E of part 
1944 of this chapter.
    C Changes in allowances. The utility allowance should be reviewed 
annually and adjusted if there are substantial changes in

[[Page 315]]

utility and public service rates. Allowances will be adjusted on an 
annual basis if necessary when the owner submits a new budget for 
approval. Changes in utility allowance which will result in changed rent 
paid by tenants will be processed according to exhibit C of this 
subpart.

                  X Method of Payment of RA to Borrower

    A Regular monthly RA payments.
    1 Borrower responsibilities.
    a Any RA due the borrower will be deducted from the balance of 
scheduled loan payments, any delinquent payments, and other charges due 
on Form FmHA or its successor agency under Public Law 103-354 1944-29 
and the remaining balance must be submitted to the Servicing Office by 
check. If the RA due the borrower exceeds the balance of scheduled loan 
payments, delinquent payments and other charges, no additional payment 
is due from the borrower and an RA check for the excess will be issued 
by the FO.
    b Each month the borrower must forward to the Servicing Official a 
Form FmHA or its successor agency under Public Law 103-354 1944-29. Any 
new Forms FmHA or its successor agency under Public Law 103-354 1944-8 
must be submitted to the Servicing Office as required in exhibit B of 
this subpart. Both forms must be prepared for each project according to 
the instruction attached to the respective forms.
    2 Servicing Official responsibilities.
    a When new Forms FmHA or its successor agency under Public Law 103-
354 1944-8 are received, the Servicing Official will immediately date 
stamp each form with the receival date, review each Form FmHA or its 
successor agency under Public Law 103-354 1944-8 and verify that the 
information contained on the form is complete and correctly computed 
based on information contained in the form.
    b When a Form FmHA or its successor agency under Public Law 103-354 
1944-29 is received, the Servicing Official will:
    (1) Date stamp each form FmHA or its successor agency under Public 
Law 103-354 1944-29, and review the form and assure that entries are 
supported by the current form FmHA or its successor agency under Public 
Law 103-354 1944-8.
    (2) Enter the payment data via field office terminals as required in 
exhibit A to subpart K of part 1951 of this chapter (available in any 
FmHA or its successor agency under Public Law 103-354 office).
    c The Servicing Official should verify the accuracy of the 
borrower's servicing address shown on the FO record. When the address 
shown is incorrect, corrections must be made on AMAS screen M5A ``Record 
Borrower/Project Data'' via a field computer terminal.
    B When a project account is delinquent, the Servicing Official may 
agree to release a portion of the monthly RA for project operation 
according to provisions authorized in a servicing plan developed in 
accordance with exhibit F of subpart B of part 1965 of this chapter 
(available in any FmHA or its successor agency under Public Law 103-354 
Office).
    C An RA payment request must be based on actual occupancy as of the 
first day of the month.

                       XI Assigning RA to tenants

    A New project. Applications for occupancy should be accepted during 
the construction phase of the project, after the preconstruction 
conference has been held, and placed on a waiting list. During initial 
rent-up period, the following priorities will apply:
    1 Until all the RA units have been assigned, a number of apartment 
units in the project equal to the number of RA units will be initially 
reserved for eligible tenants as defined in paragraph II A of this 
exhibit who qualify for RA, even if there are applications on other 
lists that applied earlier. Applications qualifying for RA will be 
considered according to the priority established by paragraph XI B of 
this exhibit, by passing those applicants on the waiting list whose 
income is above the low-income limits for the area. The remaining units 
equal to the number of units that will not be subsidized with RA can be 
rented simultaneously to other applicants.
    2 If a substantial number of apartment units reserved to be used 
with RA units remain vacant after initial rent-up and the borrower could 
rent those units to applicants not eligible for RA, the borrower may 
request a transfer of unused RA units in accordance with paragraph XV B 
5 of this exhibit. However, applicants not eligible for RA cannot be 
selected to occupy units initially reserved to be used with RA until the 
unused RA units are transferred.
    3 If there are still vacant units, those applicants by-passed 
because they did not qualify for RA will be considered for occupancy on 
a first-come, first-served basis.
    B Operational RRH and RCH projects. To determine priority for 
assigning an available RA unit in an operational project, the latest 
Form FmHA or its successor agency under Public Law 103-354 1944-29 for 
the project must be updated as of the date the unit is available, 
assuring that columns 3 through 9 of part II are current and accurate.
    1 First priority for assigning RA must always be given to eligible 
very low-income households in the following order:
    a Eligible very low-income tenants paying the highest percentage of 
adjusted annual income for approved shelter costs.
    b Eligible very low-income applicants from the project waiting list 
according to the order provided in paragraph VI H of exhibit

[[Page 316]]

B of this subpart. No eligible tenant household in the project may be 
required to move from the project to allow an applicant on the waiting 
list who is eligible for RA to move in.
    2 Second priority for assigning RA will be given to eligible 
households with low-income in the following order.
    a Eligible low-income tenants in the project paying the higher 
percentage of adjusted annual income for approved shelter cost.
    b Eligible low-income applicants from the project waiting list. Low-
income applicants will be selected according to paragraph VI H of 
exhibit B of this subpart, provided the borrower has satisfied the 
requirements of paragraph XI C of this exhibit.
    3 Third priority for RA will be given to occupancy ineligible 
tenants as described in paragraph VI D 7 b of exhibit B of this subpart 
living in the project.
    4 Eligible tenants receiving the benefits of RA may continue 
receiving such benefits as long as they remain eligible for RA, as the 
RA calculation formula shows a moderate income tenant that was initially 
eligible for RA as a very low- and/or low-income tenant who still needs 
RA and there is an RA agreement in effect.
    C Limits on low-income RRH and RCH applicants who may receive 
occupancy and RA:
    1 When no more very low-income applicants are on the waiting list 
and RA is available, eligible low-income applicants may obtain occupancy 
and receive RA provided that:
    a For projects available for initial occupancy prior to November 30, 
1983, no more when 25 percent of the vacant units receiving RA may 
become occupied by low-income tenants other than very low-income 
tenants.
    b For projects available for initial occupancy on or after November 
30, 1983, no more than 5 percent of the vacant units receiving RA may 
become occupied by low-income tenants other than very low-income 
tenants.
    2 The borrower may rent units and provide RA to other than very low-
income applicants/tenants in excess of the percentage in paragraph XI C 
1 a and b of this exhibit respectively, only when there are no more very 
low-income applicants or tenants available in the market area. The 
borrower must have documentation in its file and available to FmHA or 
its successor agency under Public Law 103-354 for its review to show the 
efforts made, and the facts used to determine that there are currently 
no more very low-income applicants in the market area.
    D Operational LH projects: Tenants who meet the definitional 
requirements of domestic farm laborers found at Sec.  1944.153 of 
subpart D of part 1944 of this chapter shall be assigned RA in the 
following priority order within the subcategories of priority occupancy 
established by that subpart:
    1 Very low-income.
    2 Low-income.
    E Assigning RA other than the first of the month:
    1 When a tenant receiving RA vacates before the end of the month, 
the RA unit should be immediately reassigned to another tenant or an 
applicant using the priorities given in paragraph XI B of this exhibit.
    2 When RA is assigned to an applicant and the applicant initially 
enters the project on a day other than the first of the month, the 
applicant's tenant contribution for housing costs will be prorated for 
the remaining portion of the month the same as if the tenant was 
receiving RA. [Example: Basic rent of $200 and the tenants monthly 
contribution with RA would be $120, the prorate amount for \1/2\ month 
would be $60.]
    3 When RA is assigned to a tenant other than the first of the month, 
no adjustment to their tenant contribution on Form FmHA or its successor 
agency under Public Law 103-354 1944-29 for that month will be made. The 
borrower will begin to receive reimbursement of RA for the tenant as of 
the first day of the next month.
    4 No adjustment will be made on Form FmHA or its successor agency 
under Public Law 103-354 1944-29 to request additional RA payment or to 
refund any excess RA payment or overage for the previous month when RA 
is reassigned other than the first of the month.
    XII RA assigned to wrong household: When the tenant has correctly 
reported income and household size, but RA was assigned to a household 
in error, that tenant's RA benefit should be canceled and reassigned. 
Incidents involving incorrect reporting are addressed in subpart N of 
part 1951 of this chapter.
    A Before the borrower notifies the tenant, the borrower or 
management agent shall review the case with the Servicing Official. If 
the Servicing Official verifies that an error has been made based on 
information available at the time the unit was assigned, the tenant will 
be given 30 days written notice that the unit was assigned in error and 
that the RA benefit will be canceled effective on the next monthly 
rental payment due date after the end of the 30-day notice period. The 
tenant will also be notified in writing that:
    1 The tenant has the right to cancel the lease based on the error 
made by the borrower and the loss of benefit to the tenant.
    2 The RA granted in error will not be recaptured from the tenant.
    3 The tenant may meet with management to discuss the cancellation 
and the facts on which the decision was based. If the facts are accurate 
and the tenant cannot produce further evidence proving eligibility for 
RA, there will be no appeal from the decision. If

[[Page 317]]

the tenant feels there is justification for further review, the borrower 
must give the tenant appeal rights under subpart L of part 1944 of this 
chapter.
    B Reassigning RA. The RA unit will be reassigned to the next 
eligible household, based on Form FmHA or its successor agency under 
Public Law 103-354 1944-29 from which the original priority was 
established, when the unit was erroneously assigned. The RA will not be 
retroactive unless the reassignment was based on an appeal by the 
tenant. Retroactive RA may not exceed the project's remaining RA 
obligation balance.
    XIII RA payment cancellation: When an RA check must be canceled, the 
following procedure will be followed:
    A Return of the original RA U.S. Treasury Check: The Servicing 
Office will prepare Form FmHA or its successor agency under Public Law 
103-354 1944-53, ``Multiply Family Housing Cancellation of U.S. Treasury 
Check and/or Obligation'' as specified in the FMI and mail it to the MFH 
unit in the FO.
    B Return of all or a portion of the monthly RA payment or refund of 
RA previously advanced: A check from the borrower made payable to FmHA 
or its successor agency under Public Law 103-354 will be submitted to 
the MFH unit in the FO on Form FmHA or its successor agency under Public 
Law 103-354 1944-53, completed according to the FMI.
    XIV Terminating existing RA agreements obligated in prior and/or 
current FYs.
    A When a project's obligated funds are fully disbursed under any 
given RA obligation number, RA will be automatically terminated by the 
FO and no further RA requests will process against the RA obligation 
number. The Servicing Official must monitor these balances through field 
office terminals and AMAS Report No. 513-C. The Servicing Office will 
modify Form FmHA or its successor agency under Public Law 103-354 1944-
27 according to the FMI to indicate that a termination has occurred. The 
Servicing Official will notify the borrower in writing that the 
obligation under the RA obligation number has expired and the RA 
obligation number must be stricken from the agreement.
    1 For all RA obligations before FY 1985. RA is considered fully 
disbursed by the FO when all RA funds obligated before FY 1985 are 
disbursed.
    2 For all RA obligations after FY 1984. RA is considered fully 
disbursed by the FO when all RA funds obligated in a particular FY are 
disbursed. This includes RA transferred from a different MFH project.
    3 When a Form FmHA or its successor agency under Public Law 103-354 
1944-27 consists of several different obligations (Form FmHA or its 
successor agency under Public Law 103-354 1944-51, part III, or Form 
FmHA or its successor agency under Public Law 103-354 1944-55) 
identified by different RA obligation numbers, and the obligations will 
not be fully disbursed at the same time, only those RA obligation 
numbers with fully disbursed obligation will be terminated.
    B Prior to full disbursement of obligated funds:
    1 Prior FY obligations. Prior FY obligations will not be terminated. 
They will be suspended by the State Director using procedures in 
paragraph XV of this exhibit.
    2 Current FY obligations. The State Director is authorized to 
terminate RA obligation prior to the disbursement of obligated funds if 
the funds were obligated during the current FY. The undisbursed funds 
for the RA obligation will be returned to the current FY obligation 
authority.
    XV Suspending or transferring existing RA.
    A RA may be suspended or transferred according to the requirements 
for each situation described in paragraph XV B of this exhibit and the 
following:
    1 Suspension.
    a The State Director may approve a suspension of a project's RA 
agreement and obligation as a result of the servicing actions described 
in paragraphs XV B 2, 3, and 4 of this exhibit. The State Director will 
maintain records and control of the suspended RA.
    b The State Director or Servicing Office will notify the borrower in 
writing, stating the reason(s) the RA is suspended.
    c The Servicing Office will put a suspend code on the account. This 
is done on the M5A ``Record Borrower/Project Data'' screen in AMAS using 
Suspend Code 7. After suspension, only RA payments described in 
paragraph XV B 4 of this exhibit will be processed by the Servicing 
Office.
    d The State Director may approve reinstatement of the RA to the same 
borrower in the same project. After approval, the Servicing Office will 
remove the suspend code from the project using the M5A screen.
    e The State Director may reinstate the RA to the same borrower in 
the same project by removing the suspend code from the M5A screen 
through field office terminals.
    2 Transfer.
    a Only the State Director may approve an RA transfer.
    b RA may be transferred to any borrower with an RA eligible project 
according to the priorities established by this exhibit or the National 
Office.
    c AMAS will determine the per unit value of the RA obligation being 
transferred by dividing the undisbursed balance of the RA obligation on 
the date the transfer is processed by the number of RA units in the 
agreement. The number of units being transferred times the per unit 
value equals the total amount transferred. After the transfer processes 
the State Director should enter the dollar amount of the transfer in the 
Remarks area

[[Page 318]]

of Form FmHA or its successor agency under Public Law 103-354 1944-55.
    d RA units identified by different RA obligation numbers may be 
transferred. New RA obligation numbers should be assigned according to 
the FMI for Form FmHA or its successor agency under Public Law 103-354 
1944-55.
    e All or any portion of the units in an RA Agreement with an 
undisbursed balance may be transferred by the State Director.
    f When the State Director approves an RA transfer, Form FmHA or its 
successor agency under Public Law 103-354 1944-55 completed according to 
the FMI, will be used to notify the FO except as noted in paragraph XV B 
1 of this exhibit.
    g Form FmHA or its successor agency under Public Law 103-354 1944-
27, with Form FmHA or its successor agency under Public Law 103-354 
1944-55 attached, will be completed according to the FMI for each 
transferee. The transferee may use the transferred units effective the 
first day of the month in which the transfer is approved.
    h The transferor's Form FmHA or its successor agency under Public 
Law 103-354 1944-27 will be modified by attaching a copy of Form FmHA or 
its successor agency under Public Law 103-354 1944-55 according to the 
FMI to indicate that a portion of the agreement has been transferred. 
When all the RA units on a RA agreement have been transferred, the 
transferor's present agreement will be so documented.
    B RA may be suspended and/or transferred in the following situations 
according to the following directions:
    1 RA transfer accompanying a project transfer. When a project is 
transferred to an eligible borrower, the transferee may assume the 
transferor's liquidated RA obligation(s). Form FmHA or its successor 
agency under Public Law 103-354 1944-55 will be forwarded to the FO 
attached to Form FmHA or its successor agency under Public Law 103-354 
1965-10, ``Information on Assumption of Multiple Family Housing Loans,'' 
as required in Sec.  1965.65(c)(11) of subpart B of part 1965 of this 
chapter.
    2 Suspension and transfer after a voluntary conveyance or 
foreclosure sale. When a project with RA is voluntarily conveyed to the 
Government or acquired by foreclosure sale, the RA obligation will be 
automatically suspended under the borrower's name when the FO processes 
Form FmHA or its successor agency under Public Law 103-354 1965-19, 
``Multiple Family Housing Advice of Mortgaged Real Estate Acquired.'' 
These units will be held in suspense until the final disposition of the 
acquired property has been determined. During the inventory period 
tenants will pay 30 percent of their income for rent. Tenants entitled 
to reimbursement for utilities will be paid from project income.
    3 Suspension and transfer after a liquidation or prepayment.
    a When a project with RA is liquidated through sale outside of the 
program or the loan is paid in full, the RA will be suspended and, 
subsequently, transferred to a different FmHA or its successor agency 
under Public Law 103-354 financed project in accordance with paragraph 
XV B 3 b of this exhibit, if applicable, or if not, to another project 
at the State Director's discretion.
    b When a tenant receiving RA is, or will be, displaced from an FmHA 
or its successor agency under Public Law 103-354 project due to 
prepayment or liquidation, the RA the tenant was receiving will be 
transferred, or suspended and transferred, to any other FmHA or its 
successor agency under Public Law 103-354 project, regardless of 
location, to which the displaced tenant moves. That tenant will be given 
first priority for a unit of RA, regardless of other priorities for the 
RA, if all the following conditions are met:
    (1) The borrower is eligible to receive and administer RA.
    (2) The tenant is eligible to occupy the project and to receive RA.
    (3) The tenant had taken all the following steps to insure 
eligibility to receive priority for the unit of RA:
    (i) Had been placed on at least one waiting list for a FmHA or its 
successor agency under Public Law 103-354 project with a Letter of 
Priority Entitlement.
    (ii) Moved to the project as soon as the name was reached on a 
waiting list, even if it meant temporarily occupying an ineligible unit. 
The ineligiible unit may not differ from the one for which the tenant is 
eligible by more than one bedroom.
    (iii) Moved to an eligible unit as soon as one was available.
    (4) The RA has not previously been transferred for the tenant's 
current displacement.
    c Procedures for transferring RA and modifying RA agreements 
outlined in paragraphs V C and XV A 2 of this exhibit will be followed, 
but the receiving project borrower need not submit Form FmHA or its 
successor agency under Public Law 103-354 1944-25 if the RA was received 
as a result of the occupancy of a displaced tenant.
    4 Suspension and transfer or reinstatement due to a servicing 
action.
    a When servicing a project's account according to Sec.  1965.85 of 
subpart B of part 1965 of this chapter and the account has been 
accelerated:
    (1) The RA will be suspended to the extent that no payments will be 
credited to the project's account. Interest credit will be credited to 
the project's account until the appeal period for the acceleration has 
expired. After the expiration of the appeal period, if it is determined 
that foreclosure will proceed, the interest credit will be cancelled as 
of the last day of the month in which the

[[Page 319]]

appeal period expired. RA will be automatically suspended by the 
interest credit cancellation.
    (2) That portion of the monthly RA not needed to pay the project 
monthly installment and other charges as specified in paragraph VIII of 
exhibit A to subpart K of part 1951 of this chapter (available in any 
FmHA or its successor agency under Public Law 103-354 office) may be 
processed and returned to the project operating account to maintain 
project operation.
    (3) RA agreements expiring during the acceleration and appeal 
process may be renewed in order to continue payment of RA as described 
in paragraph X V B 4 a (2) of this exhibit.
    b After final disposition of the acceleration, expiration of the 
appeal and redemption period of the defaulting borrower the RA will be:
    (1) Transferred with a credit sale. If the project is sold through a 
credit sale to an eligible borrower within the program, the suspended RA 
should be transferred from the previous borrower's case number and 
project number to the new case number and project number. Form FmHA or 
its successor agency under Public Law 103-354 1944-55 will be attached 
to Form FmHA or its successor agency under Public Law 103-354 1965-20 
``Multiple Family Housing Advice of Mortgaged Real Estate Sold,'' when 
it is sent to the FO, or
    (2) Transferred to a different project when the defaulting project 
is sold outside the program. When the suspended RA is not needed for the 
project after the credit sale or other disposition of the acquired 
property, the State Director should transfer the RA to a different 
project or projects as provided in paragraph XV A 2 of this exhibit, or
    (3) Reinstated to the same project when the defaults are corrected 
and the State Director reinstates the borrower's account.
    c The borrower will be apprised of the appeal rights available under 
subpart B of part 1900 of this chapter upon notification of the pending 
suspension. The suspension will not be effective until these appeal 
rights have been exhausted.
    5 Transfer of unused RA. When RA is unused after initial rent-up and 
not needed because of a lack of eligible potential tenants in the area, 
all or a portion of it may be transferred when the State Director 
determines that the following conditions have been met:
    a The borrower describes the efforts made to market the subsidized 
units and further demonstrates that:
    (1) The market survey indicated there should be a significant need 
for rental housing by households in the market area that would have 
required RA for occupancy, but all or a substantial portion of the RA 
units available remain unused after a 2-year period since initial 
availability. The borrower must:
    (i) Document the efforts made to market the project to RA eligible 
applicants;
    (ii) Demonstrate that the waiting list does not contain RA eligible 
applicants and the project is not occupied by RA eligible tenants who do 
not receive RA; and
    (iii) Certify that project management has not used a policy of 
discouraging RA eligible households from applying for or obtaining 
tenancy in the project.
    (2) Rent increases anticipated for the following 2 years will not 
prompt a request for RA according to the provision of exhibit C of this 
subpart.
    b The Servicing Official recommends the RA transfer after reviewing 
documentation submitted by the borrower and finding that the applicable 
conditions of paragraph XV B 5 of this exhibit have been met.
    c If, after the end of the initial year of a RA agreement, the 
borrower has not used a portion of the RA units for any ensuing 
consecutive 12-month period, the State Director may transfer the number 
of unused units, minus at least one, to another project without the 
borrower's request. If the remaining unit(s) remains unused after an 
additional 12-month period, the State Director may authorize its 
transfer to another project. This would apply only if the current 
agreement is on form FmHA or its successor agency under Public Law 103-
354 1944-27 and when:
    (1) The borrower has made the efforts described in paragraphs XV B 
5a (1)(i), (ii), and (iii) of this exhibit to market the project to 
tenants needing RA, or if the borrower's failure to use RA has resulted 
in an acceleration of the loan account.
    (2) The Servicing Official has reviewed the project occupancy list, 
waiting list, past RA usage, and any other data available and verified 
that there is no apparent RA needs in the project.
    (3) The State Director has notified the borrower at least 30 days in 
advance of FmHA or its successor agency under Public Law 103-354's 
intent to transfer the RA units and has given the borrower appropriate 
appeal rights in accordance with subpart B of part 1900 of this chapter.
    (4) If the borrower appeals the decision, the appeal is resolved in 
accordance with subpart B of part 1900 of this chapter before any 
transfer action is taken.
    (5) The transfer will be completed in accordance with paragraph XV A 
2 of this exhibit.
    6 Transfer due to an unclosable loan. When RA will be unused because 
the loan to which it was obligated will not be closed, or the RA 
agreement is not signed, the RA obligation may not be transferred except 
as provided under the conditions of Sec.  1944.235 (b) of subpart E of 
part 1944 of this chapter. However, if this situation occurs during the 
same FY

[[Page 320]]

of obligation, the obligation should be cancelled and reobligated 
immediately using current authorities. Obligations from prior FY must be 
canceled and will be lost unless the conditions of Sec.  1944.235 (b) of 
subpart E of part 1944 of this chapter exist.
    XVI Rights for appeal if RA is not granted or is cancelled by FmHA 
or its successor agency under Public Law 103-354.
    A Borrowers who have requested RA in writing and are denied such 
assistance due to a determination of ineligibility by FmHA or its 
successor agency under Public Law 103-354, or when RA is cancelled, will 
be notified in writing of the specific reasons why they have been denied 
RA and will be notified of their appeal rights in accordance with 
subpart B of part 1900 of this chapter.
    B If at any time a borrower or a household is granted RA under an 
appeal, the borrower or household will receive the next available RA 
unit.
    C Borrower denial of RA to tenants will be handled according to 
subpart L of part 1944 of this chapter.
    XVII Forms and exhibits. Exhibit A-6 to subpart E of part 1944 of 
this chapter and Form FmHA or its successor agency under Public Law 103-
354 1944-7 are to be used in determining the amount of RA to be 
provided.

[58 FR 40868, July 30, 1993, as amended at 62 FR 25065, 25066, May 7, 
1997; 67 FR 78327, Dec. 24, 2002]

Exhibit F to Subpart C of Part 1930--Farmers Home Administration or Its 
   Successor Agency Under Public Law 103-354 Multiple Family Housing 
                 Supervisory Visit--Pre-Visit Worksheet

                    Purpose and Use of This Document

    Use this document to help organize information and plan for a 
supervisory visit, compliance review, and physical inspection. It should 
be completed far enough in advance so that all relevant concerns and 
issues surrounding project operations are known and considered prior to 
the site visit.
    Appropriate Servicing Office staff should examine the project 
casefile, consult with coworkers, and review any outstanding issues 
raised by FmHA or its successor agency under Public Law 103-354's most 
recent annual review of project operational and financial status. Other 
relevant issues may be obtained from a variety of sources such as 
ongoing tenant certification or payment processing concerns, Automated 
Multi-housing Accounting System (AMAS) status, correspondence from 
tenants or project management, or other issues contained in the running 
record.
    Use your available tracking systems, AMAS, FOCUS, or Multi-housing 
Tenant File System (MTFS) to gather statistical information relevant to 
this document and the visit, to help define current project status and 
to determine if that status falls within acceptable FmHA or its 
successor agency under Public Law 103-354 norms for occupancy or 
financial operations.
    Thoroughly review the management plan and management agreement to 
assure that the management practices at the project are in accordance 
with FmHA or its successor agency under Public Law 103-354 procedure and 
with the way project management has agreed to operate.
    You should use the random sampling technique contained in exhibit F-
1 of this subpart to establish a sample of tenants for conducting tenant 
file reviews, interviews and apartment unit reviews, or wage matching. 
You may use an alternative sampling technique; however, you must fully 
explain any alternative sampling techniques on this document. Also, you 
may supplement your random sample with additional tenants that appear to 
represent unique occupancy or verification situations.
    You may contact tenants to advise them of your visit and provide 
them the opportunity to express their view of project operations. 
Exhibit F-2 of this subpart may be used for this purpose.

 FmHA or Its Successor Agency Under Public Law 103-354 MFH Supervisory 
                       Visit--Pre-Visit Worksheet

Project name:
________________________________________________________________________
Borrower name:
________________________________________________________________________
Borrower ID and project number:
________________________________________________________________________
Project location:
________________________________________________________________________
Project management:
________________________________________________________________________
FmHA or its successor agency under Public Law 103-354 visit to be 
completed by:
________________________________________________________________________
    General information.

Visit Date: ( - - ) Bor/Mgt notified of visit: ( - - ) ----------
Tax Credit Eligible: (y)(n) Number of Sec. 8 Units: ----------
Project Type: (RRH)(RCH)(LH) Number of RA Units: ----------
Latest tenant termination notice attached: (y)(n)(na) ----------
Project's latest tenant grievance attached: (y)(n)(na) ----------

    Current tenant information for supervisory visit.

[Latest MTFS project worksheet attached. As of: ( - - )] ----------
Total Units: ------------

[[Page 321]]

Vacant Units: ------------
Overburdened Tenants: ------------
Tenants Receiving RA: ------------
Unused RA Units: ------------
Expired Certifications: ------------
    Current tenant information for compliance review.

[Latest MTFS documentation attached. As of: ( - - )] ------------

    Tenants by race national origin code.

White, Non-Hispanic: ------------
Black, Non-Hispanic: ------------
Asian, Pacific Island: ------------
American Indian, Alaska Native: ------------
Hispanic: ------------

    Tenants by Sex.

Male, single member household: ------------
Female, single member household: ------------
Family (nonsingle member) household: ------------

    Tenants by handicapped/disability status.

Designated handicapped household member: ------------
Designated disabled household member: ------------
Number of designated handicapped units: ------------
Number of designated handicapped units occupied by a handicapped or 
disabled household member: ------------

                     Review of Current Documentation

------------------------------------------------------------------------
                                        Outstanding concerns: (Check if
    Date of most recent action or         yes, and explain briefly in
        approval: (Enter date)                  Comments below)
------------------------------------------------------------------------
1. (---- ---- ----) Supervisory Visit  --------------
2. (---- ---- ----) Physical           --------------
 Inspection of Property.
3. (---- ---- ----) Compliance Review  --------------
4. (---- ---- ----) Management Plan..  --------------
5. (---- ---- ----) Management         --------------
 Agreement.
6. (---- ---- ----) Affirmative Fair   --------------
 Housing Marketing Plan.
7. (---- ---- ----) Lease............  --------------
8. (---- ---- ----) Occupancy Rules..  --------------
9. (---- ---- ----) Rent Change......  --------------
10. (---- ---- ----) Energy Audit and  --------------
 Implementation Plan.
------------------------------------------------------------------------

    Comments:

    Other operational or financial concerns:

    Additional documentation for the upcoming visit:
Most recently completed exhibit A-2 of this subpart attached: (y)(n)(na)
Most recently approved Form FmHA or Its Successor Agency Under Public 
Law 103-354 1930-7 Multiple Family Housing Project Budget attached: 
(y)(n)
    Tenants selected for tenant file review:

Name and unit number

________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

    Tenants selected for interview and apartment unit review (if other 
than above):

Name and unit number
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

    Tenants selected for wage match (if other than above):

Name and unit number

________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

    Tenant data review actions:

Reviewed tenant records & selected tenant sample: ( - - )
Tenant list sent to State Office for wage match: ( - - )
Final Report to file, borrower, HUD etc.: ( - - )
Exhibit F-1 (of this subpart) process used to select tenant sample: 
(y)(n)
Explanation of other sampling process attached: (y)(n)(na)

[[Page 322]]

    Exhibit F-1 to Subpart C of Part 1930--Suggested Random Sampling 
                      Technique for Tenant Reviews

    Enter information to be used in the sampling calculation.

A. ------ Total number of revenue producing units.
B. ------ Percentage of units to be reviewed (based on Servicing Office 
preference for sample size, expressed as a decimal, for example .10 for 
10 percent or .50 for 50 percent).
    Note: At least six tenant households will be sampled or 100 percent 
of all households for projects having six or fewer units.

    Determine the sample size.

C. ------ (A times B)

    Determine the sampling ``interval.''

D. ------ (A divided by C)

    Determine the ``starting point'' of the sample.

E. ------ (the last digit of the current calendar year)

    Sampling process.
    Using the most current project worksheet, start selecting tenants 
with the tenant at the ``starting point'' (E) and select every tenant on 
the worksheet at the ``interval'' (D). To assure that you have a full 
sample (C), you may need to ``wrap around'' the project worksheet.
    For example:
    A 24-unit project is to be visited. Based on the June 1, 199X, 
project worksheet, a 25 percent sampling will be used.

A. Total number of units is 24
B. Percentage to be reviewed is ``.25''
C. Sample size is 6
D. Interval is 4
E. Starting point is X year digit

    Starting with the second tenant on the project worksheet, every 
fourth occupied unit will be selected for the sample.

Exhibit F-2 to Subpart C of Part 1930--Suggested Format for a Pre-Visit 
                          Tenant Contact Letter

Date
Name
Address
Dear Tenant:

    The Farmers Home Administration (FmHA) or its successor agency under 
Public Law 103-354 of the United States Department of Agriculture (USDA) 
financed the apartment project where you now live. At least once every 
three years, FmHA or its successor agency under Public Law 103-354 makes 
a site inspection and management review. The purpose of the visit is to 
help assure that this FmHA or its successor agency under Public Law 103-
354 financed project is being operated in accordance with Federal laws 
and regulations.
    Our next visit is scheduled for ---------- at approximately --------
--. We would appreciate knowing any questions, comments, or concerns 
that you would like to share with us regarding your occupancy. We may be 
able to talk to you directly during the visit, or you may want to 
contact us before the visit at:

(Insert Servicing Office Address)

    Some of the issues FmHA or its successor agency under Public Law 
103-354 reviews during the visit are to determine: if fair and equal 
access is provided to apartments in your project; if outstanding 
maintenance, repair, or security concerns exist; how income is verified 
or certified; and if occupancy charges are at FmHA or its successor 
agency under Public Law 103-354 approved levels.
    Your response to this letter is completely voluntary. We appreciate 
your assistance.

 Sincerely,

Servicing Official

Exhibit G to Subpart C of Part 1930--Farmers Home Administration or Its 
   Successor Agency Under Public Law 103-354 Multiple Family Housing 
                 Supervisory Visit--Summary of Findings

Project name:
________________________________________________________________________
Borrower name:
________________________________________________________________________
Borrower ID and project number:
________________________________________________________________________
Date of visit:
________________________________________________________________________
Persons interviewed:
________________________________________________________________________
FmHA or its successor agency under Public Law 103-354 visit completed 
by:
________________________________________________________________________

                    Purpose and use of This Document

    This document summarizes the findings obtained during the subject 
supervisory visit. Information is collected directly by the FmFA 
reviewer on this form or summarized from information obtained from any 
of the following sources:

1. Pre-visit worksheet (Exhibit F of this subpart)
2. A concurrent compliance review
3. A concurrent project physical inspection
4. Tenant file reviews
5. Tenant interviews & unit reviews
6. Tenant wage matching findings
7. FmHA or its successor agency under Public Law 103-354 docket 
information
8. Any other relevant document or worksheet


[[Page 323]]


    FmHA or its successor agency under Public Law 103-354 will review 
the project file and any other project management documentation prior to 
the visit to identify areas of concern.
    The FmHA or its successor agency under Public Law 103-354 reviewer 
may prepare questions in advance to draw responses from project 
management or tenants that will enable FmHA or its successor agency 
under Public Law 103-354 to answer the question on the supervisory visit 
forms. The questions should be prepared to allow the respondent to 
describe how tasks or functions are performed (i.e., who, what, when, 
where, or why), rather than ``do you do this.''
    The findings are listed to highlight areas of project management and 
operation activities as they relate to the project management plan as 
described in exhibit B-1 of this subpart.
    Concerns resulting from this supervisory visit may be used as a 
basis for requiring improved borrower/project management performance.

          Status/Analysis (Indicate Yes, No, or Not Applicable)

    1. Identity of interest (IOI) and relationship of borrower, 
management agent and suppliers.

---- Borrower and management agent IOI properly disclosed.
---- Borrower & material/services suppliers IOI properly disclosed.
---- Management Agent & material/services suppliers IOI properly 
disclosed.
---- Are IOI provided management, material and services comparable in 
cost, quality or scope to ``arms-length'' transactions?

    Comments:
    2. Personnel policy and staffing.

---- Personnel policy and staffing per management plan.

    Comments:
    3. Marketing and Occupancy.
    Signs and posters compliance.

---- Project sign.
---- Equal Housing LOGO on sign.
---- Handicapped LOGO at handicapped parking space.
---- Sign indicates where to apply for housing.
---- Equal Housing Opportunity posters visible.
---- ``. . .and Justice for All'' posters visible.

    Affirmative marketing.

---- Affirmative Fair Housing Marketing Plan (AFHMP) available for 
review.
---- AFHMP signed and dated by authorized FmHA or its successor agency 
under Public Law 103-354 official.
---- Advertising documented (Attach copies).
---- Race/Ethnic composition of the project reflects market area.

                Applications Management/Occupancy Policy

---- Applications accepted at project.
---- Applications accepted from anyone.
---- Proper documentation of applicant contacts.
---- Proper written documentation of withdrawn/rejected applicants.
---- Applicants on waiting list. Number: --------.
---- Applicants with a Letter of Priority. Number: --------.
---- Tenant file review indicates proper application maintenance.
---- Waiting list meets 1930-C requirements.
---- Most recent tenant selection met 1930-C requirements.
---- Correct priorities for selection followed.
---- Marketing and occupancy policy per management plan.
---- Occupancy ineligible tenants properly admitted.
---- Occupancy ineligibles are placed on a unit transfer list.
---- Occupancy ineligibles have appropriate lease clauses.

    Achieving full occupancy.

---- Tenant vacancy percentage is within an acceptable range.
---- Tenant turnover rate is within an acceptable range.
---- Tax credit eligibility is not affecting project viability.
---- Marketing incentives are used to attract tenants.

    Comments:

    4. Determining eligibility and adjusted income.

---- Income included or excluded correctly.
---- Frequency and timing of verification is correct.
---- Manager believes tenant provided data is accurate & complete.
---- Form FmHA or its successor agency under Public Law 103-354 1944-29, 
updated before rental assistance (RA) is assigned.
---- All qualified households listed on the updated Form FmHA or its 
successor agency under Public Law 103-354 1944-29.
---- RA assignment policy meets 1930-C, exhibit E requirements.
---- Most recent tenant RA assignment met 1930-C, requirements.
---- Tenant file review indicates income/status correctly verified.
---- Tenant file review indicates income/information correct on Form 
FmHA or its successor agency under Public Law 103-354 1944-8, ``Tenant 
Certification.''.
---- Tenant file review indicates proper recertification notice.
---- Determining eligibility & adjusted income per management plan.

[[Page 324]]

---- Site manager's income verified by third party when appropriate.

    Comments:

    5. Leasing and occupancy policies.

---- Tenants placed in units according to occupancy standards.
---- Tenant lease prepared by project site manager.
---- Tenant file review indicates rent is properly determined.
---- Tenant file review indicates correct lease maintenance.
---- Tenant file review indicates FmHA or its successor agency under 
Public Law 103-354 approved lease used.
---- Tenant file review indicates FmHA or its successor agency under 
Public Law 103-354 approved occupancy rules.
---- Leasing and occupancy policies per management plan.

    Comments:

    6. Rents, occupancy charges, and occupancy surcharges.

---- Utilities paid by tenants correspond to FmHA or its successor 
agency under Public Law 103-354 approved levels.
---- Tenants do not pay additional utility fees or charges.
---- Actual costs for tenant utilities verified annually.
---- Tenant rent payments accepted and tracked on site.
---- Rent payments on site are adequately protected.
---- Tenants receive appropriate evidence of cash payment.
---- Rent and occupancy charge policy per management plan.
---- Tenant security deposit processing per management plan.
---- Application fees per 1930-C and management plan.

    Comments:

    7. Rent changes.

---- Rents and utility allowances charged are FmHA or its successor 
agency under Public Law 103-354 approved.
---- Most recent rent change per 1930-C and management plan.
---- Most recent utility allowance per 1944-E and management plan.

    Comments:

    8. Maintenance, Repair, and Replacement.

---- Maintenance per management plan.
---- Routine repair and replacement per management plan.
---- Routine unit inspection per management plan.
---- Services (i.e., exterminating) provided per management plan.
---- Security services provided per management plan.
---- Followup needed on exterior items inspected.
---- Followup needed on energy efficiency items inspected.
---- Followup needed on interior items inspected.
---- Followup needed on miscellaneous items inspected.
---- Followup needed on individual units inspected.
---- Capital improvements needed, planned and reserve account use plan 
updated.

    Comments:

    9. Supplemental Services.

---- Laundry and vending machines operated per management plan.
---- Laundry and vending proceeds handled per management plan.

    Comments:

    10. Accounting, Recordkeeping, and FmHA or its successor agency 
under Public Law 103-354 Reporting.

                             Project Records

---- Project O&M expenses appear per approved Form FmHA or its successor 
agency under Public Law 103-354 1930-7.
---- Project capital expenses appear per approved Form FmHA or its 
successor agency under Public Law 103-354 1930-7.
---- Project revenue appears per approved Form FmHA or its successor 
agency under Public Law 103-354 1930-7.
---- Project account information reviewed, balances obtained:

    Reserve account: --------
    General operating account: --------
    Tax and insurance escrow: --------
    Tenant security deposit account: --------

---- Accounts are kept per 1930-C and management agreement.
---- Funds are protected by a Federal agency or bank collateral.
---- Bookkeeping location per management plan.
---- Project financial information maintained per management plan.
---- Project is operated as part of a ``consolidated'' project.
---- If operations are consolidated, arrangement per 1930-C.
---- Internal control conducted per management plan.
---- Do multiple accounts by borrower or management entity in one bank 
exceed collateral limits.

                             Tenant Records

---- Current tenant files retained for 3 years.
---- Former tenant and rejected applicant files retained 3 years.
---- Privacy of tenant files adequately protected.
---- Tenant files maintained per management plan.

    Comments:


[[Page 325]]


    11. Energy conservation measures and practices.

---- Implemented feasible measures identified by energy audit.
---- Physical inspection recommends further energy conservation.
---- Physical inspection recommends more tenant education efforts.

    Comments:

    12. Tenant participation and relationship with management.
---- Tenant appeals since last visit. Number --------.
---- Tenants are being informed of their appeal rights.
---- ``FmHA or its successor agency under Public Law 103-354 Instruction 
1944-L'' posted for review by tenants.
---- Standing hearing panel for the project.
---- Records maintained of settlements and hearings.
---- Project management is responsive to tenant grievances.

    Comments:

    13. Management training programs.

---- Site manager training per management plan.
---- Site manager has received FmHA or its successor agency under Public 
Law 103-354 requirements training.

    Date of last FmHA or its successor agency under Public Law 103-354 
requirements training: (--------------)

---- Site manager ``certified'' from an FmHA or its successor agency 
under Public Law 103-354 recognized source.
---- Equal Opportunity training per AFHMP.

    Comments:

    14. Termination of leases and eviction.

---- The latest tenant termination was properly conducted.
---- The latest eviction was properly conducted.
---- Is termination and eviction per 1930-C and management plan.

    Comments:

    15. Management agreement plan and project operations.

---- Project uses the management plan as a working document.
---- The management plan accurately describes project operations.
---- The management agreement accurately describes project operations.
---- Indication of an unreported change to insurance coverage.
---- Indication of an unreported change to fidelity coverage.
---- Indication of unreported change to management.
---- Indication of unreported change to borrower entity.

    Comments:

    16. Management compensation.

---- Management fee paid per management agreement.

    Comments:

    17. On-site management.

---- Site manager compensation per management plan and agreement.
---- Site manager's unit operated per management plan.
    Date current site manager hired: (--------------)

    Comments:

 FmHA or its successor agency under Public Law 103-354 MFH Supervisory 
                 Visit--Conclusions and Recommendations

    Listed below are the major findings of the supervisory visit, 
compliance review, and physical inspection of the project, and any 
followup actions required by the Servicing Office.

 FmHA or its successor agency under Public Law 103-354 MFH Supervisory 
                              Visit--Rating

    Above Average ---- Satisfactory---- Below Average---- 
Unsatisfactory----

 Next follow-up needed (Letter, telephone, etc.)________________________

 Next scheduled review__________________________________________________

 FmHA or its successor agency under Public Law 103-354 MFH Supervisory 
          Visit--Additional Rural Cooperative Housing Questions

---- The cooperative treasurer has received relevant training.
---- The board of directors considers and acts on new member 
applications.
---- Applicants are screened for suitability before being placed on the 
waiting list.
---- There are signed ``What is Cooperative Housing?'' forms indicating 
the member recognizes and accepts the responsibilities associated with 
cooperative living.
---- Cooperative members perform maintenance functions.
---- Maintenance functions are contracted out. Explain:

---- The borrower cooperative is working with FmHA or its successor 
agency under Public Law 103-354.
---- The board of directors holds monthly meetings.
---- There is an agreement with the adviser.
---- The adviser to the board attends each meeting.
---- It appears that the board has control over the cooperative's 
operations.
---- The cooperative has active committees. What are the committees and 
how many members on each?

------------------------                    --------
------------------------                    --------
------------------------                    --------

[[Page 326]]

 
------------------------                    --------
------------------------                    --------
------------------------                    --------
 


    How often do the committees meet? --------

---- A board member attends committee meetings.
---- Management agreements and contracts are being followed.

    Comments:

 FmHA or Its Successor Agency Under Public Law 103-354 MFH Supervisory 
                Visit--Additional Labor Housing Questions

---- In the case of on-farm LH, the housing is serving eligible farm 
laborers employed by this LH borrower.
---- Borrower is ( ) charging, or ( ) not charging rent in accordance 
with their FmHA or its successor agency under Public Law 103-354 
approved budget.
---- Properly verifying farm labor employment.
---- Properly determining ``substantial'' portion of income from farm 
labor.

    Comments:

 FmHA or Its Successor Agency Under Public Law 103-354 MFH Supervisory 
      Visit--Additional Congregate Housing or Group Home Questions

---- Project provides a basic services package to tenants.
---- Project provides optional services package to tenants.
---- Meals provided per service agreement.
---- Transportation provided per service agreement.
---- Housekeeping provided per service agreement.
---- Personal service provided per service agreement.
---- Recreational/social services provided per service agreement.

    Comments:

 Exhibit G-1 to Subpart C of Part 1930--Farmers Home Administration or 
 Its Successor Agency Under Public Law 103-354 Multiple Family Housing 
                  Supervisory Visit--Tenant File Review

Project Name:

________________________________________________________________________
Borrower Name:

________________________________________________________________________
Borrower ID and Project Number:

________________________________________________________________________
Date of Visit:

________________________________________________________________________
Management Representative Present:

________________________________________________________________________
FmHA or Its Successor Agency Under Public Law 103-354 Review Completed 
by:

________________________________________________________________________

----------------------------------------------------------------------------------------------------------------
                                               Tenant 1                 Tenant 2                 Tenant 3
----------------------------------------------------------------------------------------------------------------
Apartment number.....................  ----------               ----------               ----------
Tenant name..........................  ----------               ----------               ----------
Application:
    Signed and dated.................  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
    EO Statement.....................  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
    1930-C requirements met..........  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
    Credit report/references.........  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
Verifications/Documentation:
    Handicap/disability..............  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
    Signed asset statement...........  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
    Assets documented................  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
    Income...........................  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
    Medical expenses.................  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
    Child care expenses..............  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
    FmHA or its successor agency       (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
     under Public Law 103-354 ``wage
     match'' used.
Correct Value on Certification:
    Assets...........................  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
    Income...........................  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
    Medical..........................  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
    Child care.......................  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
    Remaining calculations...........  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
    Occupancy standards met..........  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
Lease:
    FmHA or its successor agency       (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
     under Public Law 103-354
     approved.
    Correct rent/provisions..........  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
Re-Certification Notice:
    Used 75-90 day notice............  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
    Used 30 day notice...............  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
Other Documentation:
    Annual inspection................  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
    Move-in inspection...............  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)

[[Page 327]]

 
    Record of contacts...............  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
    Unit repairs & maintenance.......  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
    3 years of tenant files..........  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
Follow-up Required...................  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
----------------------------------------------------------------------------------------------------------------

    Comments:

 Exhibit G-2 to Subpart C of Part 1930--Farmers Home Administration or 
 Its Successor Agency Under Public Law 103-354 Multiple Family Housing 
           Supervisory Visit--Tenant Interview and Unit Review

Project Name:

Borrower Name:

Borrower ID and Project Number:

________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

Date of Visit:

Management Representative Present:

________________________________________________________________________
________________________________________________________________________

FmHA or Its Successor Agency Under Public Law 103-354 Review Completed 
by:

________________________________________________________________________

----------------------------------------------------------------------------------------------------------------
                                               Tenant 1                 Tenant 2                 Tenant 3
----------------------------------------------------------------------------------------------------------------
Apartment number.....................  ----------               ----------               ----------
Tenant name..........................  ----------               ----------               ----------
NTC from MTFS........................  ----------               ----------               ----------
From Tenant Interview:
    Number of bedrooms...............  ----------               ----------               ----------
    Number of individuals............  ----------               ----------               ----------
    Date of occupancy................  ( - - )                  ( - - )                  ( - - )
    Rent paid........................  ----------               ----------               ----------
    Utilities paid (average).........  ----------               ----------               ----------
    Knows verification rules.........  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
    Knows grievance procedures.......  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
    Maintenance is acceptable........  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
    Repairs are acceptable...........  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
    Other comments...................  ----------               ----------               ----------
From FmHA or its successor agency
 under Public Law 103-354 Apartment
 Review--Maintenance Needed:
  Energy Efficiency Items Inspected:
    Insulation.......................  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
    Caulking & weatherstrip..........  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
    Storm doors & windows............  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
    Water saver devices..............  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
    --------------------.............  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
  Interior Items Inspected:
    Floors, carpets, tiles...........  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
    Stairs, walks, common areas......  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
    Cabinets, doors..................  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
    Painting.........................  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
    Curtains & shades................  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
    Refrigerators & ranges...........  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
    Garbage disp. & exhaust..........  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
    Compactor & incinerator..........  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
    Electrical fxtrs & system........  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
    Plumbing fxtrs & systems.........  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
    Heating & air condition..........  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
    Hot water, boiler room...........  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
    --------------------.............  (y)(n)(na)               (y)(n)(na)               (y)(n)(na)
----------------------------------------------------------------------------------------------------------------


    Comments:

 Exhibit H to Subpart C of Part 1930--Interest Credits on Insured Rural 
           Rental Housing and Rural Cooperative Housing Loans

      
    I Purpose: This exhibit outlines the policies and conditions under 
which interest credits will be made on insured Rural Rental Housing 
(RRH) and Rural Cooperative Housing (RCH) loans.
    II Definitions: As used in this exhibit:

[[Page 328]]

    A Interest credit is the amount of assistance the Farmers Home 
Administration (FmHA) or its successor agency under Public Law 103-354 
may give a borrower toward making its payments on an insured RRH or RCH 
loan.
    B Interest credit and rental assistance (RA) agreement is an 
agreement between FmHA or its successor agency under Public Law 103-354 
and the borrower providing for interest credits and/or RA for RRH or RCH 
loans. This agreement will be on Form FmHA or its successor agency under 
Public Law 103-354 1944-7, ``Multiple Family Housing Interest Credit and 
Rental Assistance Agreement.''
    C Project is the total number of rental or cooperative housing units 
that are operated under one management plan with one loan agreement/
resolution.
    D Basic rent is determined on the basis of operating the project 
with payments of principal and interest on a loan to be repaid over a 
30-year or longer period at 1 percent per annum and covering budgeted 
project expenses. Basic rent also means basic occupancy charge.
    E Note rate rental is a unit rental charge determined on the basis 
of operating the project with payments of principal and interest which 
the borrower is obligated to pay under the terms of the promissory note 
and meet budgeted project expenses. Note rate rental also means note 
rate occupancy charge in an RCH housing project.
    F Overage is the amount by which total rental or occupancy charge 
payments paid or to be paid by the tenants or members of a project 
exceed the total basic monthly charge.
    G Surcharge is 25 percent of the established rent in a Plan I 
project which is added to the rent of an ineligible tenant or member.
    III Eligibilty: Borrowers may receive interest credit provided the 
loan was made on or after August 1, 1986, to a nonprofit corporation, 
consumer cooperative, State or local public agency, or to any individual 
or organization operating on a limited profit basis; is repaid over a 
period of 30 years or more; and meets the other requirements of this 
exhibit subject to the following limitations:
    A Plan I will be only to broadly-based nonprofit corporations and 
consumer cooperatives. Except for subsequent loans to projects approved 
before August 1, 1968, Plan I interest credit is no longer available. 
All borrowers already operating on Plan I may continue operating under 
it according to the applicable requirements of this exhibit and of this 
subpart. A subsequent loan on a Plan I project approved after August 1, 
1968, will require the project to convert to Plan II.
    B Plan II will be available to broadly-based nonprofit corporations, 
cooperatives, State or local public agencies, or to profit organizations 
and individuals operating on a limited profit basis.
    C Units must be ready for occupancy (decent, safe, and sanitary) to 
qualify for interest credit.
    IV Options of Borrowers: An eligible borrower operating under Plan I 
or Plan II, as described below, will determine interest credits on its 
loan in the respective manner indicated.
    A Plan I.
    1 Borrowers operating under this plan must agree to limit occupancy 
of the housing to very low-or low-income nonelderly and very low-, low- 
and moderate-income elderly, disabled, or handicapped persons.
    2 A borrower under Plan I generally must:
    a Determine that there is firm market and continuing demand for 
rental housing by persons within the applicable income limits.
    b Prepare a budget on the basis of a 3 percent loan.
    c Determine rentals to be charged.
    d Determine adjusted personal income of each tenant or member and 
have each tenant or member complete Form FmHA or its successor agency 
under Public Law 103-354 1944-8, ``Tenant Certification.'' Determine the 
monthly rent or occupancy charge to be paid by each tenant or member 
household.
    B Plan II.
    1 Borrowers operating under this plan must agree to limit occupancy 
of the housing to households, including elderly, disabled, and 
handicapped persons of very-low, low- and moderate-incomes. Under Plan 
II, interest credits are based on the cost of operating the project and 
the size and income of the household.
    2 A borrower under Plan II generally must:
    a Prepare one budget form that reflects two rent levels; the first 
level on the basis of a 1 percent interest rate loan to determine basic 
rental; the second level on the basis of a loan at the interest rate 
shown in the promissory note to determine note rate rental.
    b Determine both basic rental and note rate rental for the different 
units based on the two budgets. (See exhibit H-1 of this subpart).
    c Determine adjusted personal income of each tenant or member and 
have each tenant or member complete Form FmHA or its successor agency 
under Public Law 103-354 1944-8. Determine the monthly rent or occupancy 
charge to be paid by each tenant or member household.
    d Determine the required monthly payment on the loan at 1 percent 
interest plus overage for the month for the total units. The amount of 
the project payment will be entered on Form FmHA or its successor agency 
under Public Law 103-354 1944-29, ``Project Worksheet for Interest 
Credit and Rental Assistance.''

[[Page 329]]

    V Determining the Amount of Payment:
    A For Plan I. The amount of payment will be determined by using the 
amortization factor for a payment at a 3 percent interest rate (use the 
same number of years that was used for computing the regular installment 
on the note) plus all surcharges.
    B For Plan II. The amount of payment will be determined by using the 
amortization factor for a payment at a 1 percent interest rate (use the 
same number of years that was used for computing the regular installment 
on the note) plus all overage.
    C For the project. The payment amount for all loans on the project 
will be added together to determine the project payment. The amount due 
FmHA or its successor agency under Public Law 103-354 will also include 
all overage, surcharges, late fees, audit receivables, and cost item 
charges.
    VI Special Conditions:
    A Leases or occupancy agreements. Borrowers participating in the 
interest credit program must have an FmHA or its successor agency under 
Public Law 103-354 approved lease or occupancy agreement with the 
assisted household. Leases and occupancy agreements must comply with the 
requirements of paragraph VIII of exhibit B of this subpart.
    B Rental surcharges to ineligible tenants. If a unit is rented in 
accordance with the provisions of paragraph VI A of this exhibit to a 
tenant who is ineligible because the income exceeds the maximum income 
limits, the ineligible tenant will:
    1 Under Plan I, be charged a 25 percent rental surcharge. To 
illustrate, if the unit normally rents for $100 per month, this 
ineligible tenant would pay $125 per month. The 25 percent surcharge, or 
$25 in this illustration, would be paid on the account and would be 
included with, but in addition to, the regular payment on the loan.
    2 Under Plan II, be charged the note rate rental.
    C Vacancies.
    1 When all construction is not completed but some units are ready 
for occupancy and the contractor consents in writing to permit 
occupancy, the State Director may authorize the occupancy of those 
completed units to eligible tenants or members at the rent or occupancy 
charge they would be paying as if the amortization effective date (AED) 
and subsidy levels had been established. A prerent-up or preoccupancy 
conference is required before marketing and rent-up begins. All income 
generated must be deposited in the general operating account and used 
for management and operation of the units except for member's patronage 
capital contributions.
    2 Multi-Family Housing units rendered unusable due to fire, natural 
cause, or other damage requiring less than 180 days to repair or replace 
shall be assumed to be rented or occupied at the monthly basic rate 
rental or occupancy charge rate. If the units are not repaired or 
replaced within the 180 day period, they shall thereafter be assumed to 
be unmarketable and the units will be carried at the monthly note rate 
rental or occupancy charge rate (i.e., full overage for such units will 
be paid by the borrower until the units are again ready for occupancy). 
The Form FmHA or its successor agency under Public Law 103-354 1944-7 
will be cancelled, effective the first day of the month following the 
180-day period.
    3 The State Director may make an exception to the 180-day period if 
all of the following conditions are met:
    a The repairs have not been started or completed due to 
circumstances beyond the borrower's control; and
    b The borrower must be able to show that they have acted in good 
faith and they face serious financial difficulties in maintaining the 
project for existing tenants and they are unable to meet the payments on 
the indebtedness without the subsidy.
    4 Any borrower directly or indirectly affected by action under this 
subpart will be granted the appropriate appeal rights according to 
subpart B of part 1900 of this chapter.
    5 RRH or RCH units vacant for lack of tenant or member applications 
on the waiting list or for repair not associated with paragraph VI C 2 
of this exhibit shall be assumed to be charged at the basic rent.
    D Interest credit for tenants in projects under the Department of 
Housing and Urban Development (HUD) Housing Assistance Payment Program 
or FmHA or its successor agency under Public Law 103-354 rental 
assistance. When any rental units in an RRH project are leased under the 
new construction Section 8 program, Form HUD 50059, ``Certification and 
Recertification of Tenant Eligibility,'' or other acceptable HUD Form 
will be completed. When any rental units in an RRH project are leased 
under the FmHA or its successor agency under Public Law 103-354 RA 
program, Form FmHA or its successor agency under Public Law 103-354 
1944-8 will be completed.
    E Special cases. Situations not covered by this exhibit or exhibit E 
to this subpart will be handled individually with instructions from the 
National Office.
    F Understanding eligibility. The borrower should understand the 
eligibility requirements for occupancy of the housing. Instructions for 
tenant or member eligibility are in paragraph VI D of exhibit B of this 
subpart.
    VII Execution of Agreements:
    A Interest credit and rental assistance agreement.
    1 Multiple advance loans. Interest credit may become effective the 
first day of the month following substantial completion of construction 
when the project is ready for

[[Page 330]]

full operation, which is the AED. When the Servicing Official determines 
that the project is ready for full operation, the borrower and the 
Servicing Official should execute Form FmHA or its successor agency 
under Public Law 103-354 1944-7. A separate Form FmHA or its successor 
agency under Public Law 103-354 1944-7 will be executed for each loan on 
the project.
    2 Interim financing and servicing. Effective dates for interim 
financed loans and servicing action will be according to the Form Manual 
Insert (FMI) for Form FmHA or its successor agency under Public Law 103-
354 1944-7.
    B Change in interest credit plan. A borrower under Plan I may 
change, if it can meet the requirements of the other plan, by executing 
a new Form FmHA or its successor agency under Public Law 103-354 1944-7.
    C Borrowers who are not receiving interest credit. If an eligible 
borrower did not execute a Form FmHA or its successor agency under 
Public Law 103-354 1944-7 according to paragraph VII A of this exhibit, 
interest credit may be instituted at any time during the life of the 
loan provided the borrower agrees to the requirements of Form FmHA or 
its successor agency under Public Law 103-354 1944-7 and this exhibit. 
When Form FmHA or its successor agency under Public Law 103-354 1944-7 
is executed, it will be effective for the first of the month in which 
the Form FmHA or its successor agency under Public Law 103-354 1944-7 is 
executed.
    D Borrowers who have had interest credit terminated.
    1 If an interest credit agreement on Form FmHA or its successor 
agency under Public Law 103-354 1944-7 has been terminated because the 
benefits were not needed and circumstances change to where an interest 
credit is again needed, a new Form FmHA or its successor agency under 
Public Law 103-354 1944-7 may be executed.
    2 If an interest credit agreement on Form FmHA or its successor 
agency under Public Law 103-354 1944-7 has been terminated because of 
the borrower's failure to comply with requirements and the appropriate 
corrective actions have been accomplished, a new Form FmHA or its 
successor agency under Public Law 103-354 1944-7 may be executed.
    VIII Tenant or Member Certification: Tenant or member certification 
and recertification for interest credit borrowers will be performed in 
accordance with paragraph VII of exhibit B to this subpart.
    IX Project Payments: With each payment made, the borrower will 
complete Form RD 1944-29. The agency representative will transmit the 
payments to the Finance Office.
    A Plan I.
    1 The borrower will make monthly payments in an amount necessary to 
repay the project loans as if the loans carried a 3 percent interest 
rate. When a rental surcharge is collected as described in paragraph VI 
B of this exhibit, the surcharge will be included and will be credited 
as interest to the account as a regular payment. The special handling of 
payments involving rental surcharges is explained in paragraph IX A 2 of 
this exhibit.
    2 When a payment is made for any month that involves a rental 
surcharge, Form FmHA or its successor agency under Public Law 103-354 
1944-29 will be completed with the amount of the surcharge being 
inserted in the spaces provided. This form will be completed and the 
amount shown and will be charged to the project account regardless of 
whether the surcharge is actually collected by the borrower.
    B Plan II. The borrower will make monthly payments as though the 
project notes were written at a 1 percent interest rate plus any overage 
due and payable whether or not collected from the tenant or member.
    X Servicing: Handling of interest credits when servicing a project's 
accounts according to Sec.  1965.85 of subpart B of part 1965 of this 
chapter will be handled according to the applicable parts of subpart A 
of part 1955 of this chapter. Any unusual cases that cannot be serviced 
in accordance with these sections should be submitted to the National 
Office with the State Director's recommendations.

[58 FR 40868, July 30, 1993, as amended at 68 FR 61331, Oct. 28, 2003]

   Exhibit H-1 to Subpart C of Part 1930--Example of Interest Credit 
  Determination for Rural Rental Housing or Rural Cooperative Housing 
                           Projects (Plan II)

    $260,000 loan--approved during 1987 fiscal year project contains 
four 1-bedroom units (600 sq. ft. each) and four 2-bedroom units (700 
sq. ft. each) total floor area = 5200 sq. ft.

------------------------------------------------------------------------
   Budget for note rate rent**\a\          Budget for basic rent**
------------------------------------------------------------------------
Operating, maintenance, vacancy and  Operating, maintenance, vacancy and
 contingency allowance, reserve and   contingency allowance, reserve and
 return to investor, if applicable:   return to investor, if applicable:
 $10,560                              $10,560
Loan repayment at 9\1/2\% interest:  Loan repayment at 1% interest:
 $260M x $95.88 \b\ $24,929           $260M x $25.44 \b\ $6,615
Total annual cost $35,489            Total annual cost $17,175
$35,489 / 12 = $2958* cost/month     $17,175 / 12= $1432* cost/month
One bedroom rent: 600/5200 = .1154   One bedroom rent: 600/5200 = .1154
 x 2958 = 341.35                      x 1432 = 165.25
Two bedroom rent: 700/5200 = .1346   Two bedroom rent: 700/5200 = .1346
 x 2958 = 398.15                      x 1432 = 192.75
(341.35 x 4) + (398.15 x 4) =        (165.25 x 4) + (192.75 x 4) = $1432
 $2,958 monthly income                monthly income

[[Page 331]]

 
$35,489 / 12 = $2958* cost/mo.       $17,175 / 12 = $1432* cost/mo.
------------------------------------------------------------------------
\a\ One budget form reflecting two rent levels must be prepared; one
  level for the note rate rent and another level for the basic rent.
  (The expense items in the budgets shown in this illustration are only
  for illustration purposes and are not itemized.)
\b\ Annual amount using monthly amortization factor for 50 years. If the
  regular installment on the note was amortized using a factor for less
  than 50 years, substitute the appropriate factor for a corresponding
  number of years.
* Rounded to the nearest dollar.
** In cooperatives, the term ``rent'' shall mean ``occupancy charge.''

Exhibit I to Subpart C of Part 1930--Rural Rental Housing Loans and the 
 Housing and Urban Development Section 8 Rental Certificate and Rental 
                    Voucher Programs (Existing Units)

    I General. This exhibit contains the policies and procedures that 
will be followed by the Farmers Home Administration (FmHA) or its 
successor agency under Public Law 103-354 to permit the utilization of 
existing Section 515 Rural Rental Housing (RRH) units and the Department 
of Housing and Urban Development (HUD) tenant-based Section 8 Rental 
Certificate and Rental Voucher Programs.
    II Applicability. This exhibit is not applicable to units in Section 
515/8 projects which use the project-based Section 8 new construction 
and substantial rehabilitation programs. Otherwise, FmHA or its 
successor agency under Public Law 103-354 RRH borrowers are authorized 
to utilize the procedure outlined in this exhibit and the HUD Section 8 
Rental Certificate Program or the Rental Voucher Program for existing 
housing as outlined in HUD's regulations 24 CFR part 882 and 24 CFR part 
887 (as amended) respectively. To promote the use of these programs with 
existing projects, the following action should be taken:
    A Servicing Officials should inform RRH borrowers operating in the 
area of their jurisdiction of the contents of this exhibit.
    B The HUD Section 8 program could benefit any eligible tenant in an 
RRH project who is paying more than 30 percent of its income for rent 
and utilities. Therefore, RRH borrowers should advise tenants who are 
paying more than 30 percent of their adjusted income for housing of the 
possibility of obtaining Section 8 housing assistance payments. Those 
tenants paying 50 percent or more of their adjusted income for housing 
have preference over those paying less. In the Rental Certificate 
Program, families generally pay 30 percent of their monthly adjusted 
income toward the rent and the total rent to the owner must be below a 
maximum amount. Section 8 Rental Certificate and Rental Voucher 
assistance is administered by local Public Housing Agencies (PHA) 
authorized by HUD to administer the program in the area. This Section 8 
assistance can be used in the unit of the family's choice anywhere in 
the State where the issuing PHA is located, and in certain areas in 
adjacent States. Families must apply to the PHA and come to the top of 
its waiting list through normal PHA selection preferences.
    C The HUD Rental Voucher Program uses a ``shopper's incentive.'' If 
a unit rents for less than the payment standard established by the local 
PHA, the eligible family benefits by paying less than 30 percent of its 
monthly adjusted income toward rent and utilities, subject to a minimum 
rent calculation by the PHA. If a unit rents for more than the payment 
standard for the area (not the actual rent), the housing assistance 
payment is not increased, nor is the family told it must find another 
unit, as in the Rental Certificate Program. Instead, the family pays the 
entire difference between the rent and the rental voucher payment 
standard. The family may rent the unit if it is willing to pay more than 
30 percent of its income toward rent. There is no maximum rent as in the 
Rental Certificate Program.
    D In Rural Cooperative Housing (RCH), cooperatives are considered 
rental housing in the Section 8 Rental Certificate and Rental Voucher 
programs. Wherever the word tenant appears in this exhibit, it shall 
also mean member; rent shall also mean occupancy charge; and lease shall 
also mean occupancy agreement.
    III FmHA or its successor agency under Public Law 103-354 Policies 
Concerning Rental Rates and Payments.
    A Under the Section 8 Rental Certificate and Rental Voucher 
Programs, the PHA will pay a portion of the tenant's rent including 
utility allowance as described in paragraphs II B or C of this exhibit, 
whichever is appropriate. The contract rent to be established under 
either HUD program will be as follows:
    1 For borrowers with a 3 percent direct RRH loan and borrowers 
operating in accordance with interest credit Plan I, the contract rent 
will be the note rate rental rate for the units as determined by the 
current approved annual budget using a 3 percent amortization factor for 
principal and interest payments;
    2 For borrowers operating without interest credit, the contract rent 
will be the note rate rental rate for the unit as determined by the 
current approved annual budget using the amortization factor for the 
note rate of interest for principal and interest payments;
    3 For borrowers operating in accordance with interest credit Plan 
II, the contract rent:
    a For Rental Certificate participants will be the basic rental rate 
as determined by the current approved annual budget using a 1

[[Page 332]]

percent interest amortization factor for principal and interest 
payments;
    b For Rental Voucher participants, the rent to owner must be the 
lesser of the note rate rent for the unit as approved by FmHA or its 
successor agency under Public Law 103-354 OR the payment standard 
approved by the PHA (but not less than basic rent approved by FmHA or 
its successor agency under Public Law 103-354).
    (1) When basic rent is less than the PHA approved payment standard, 
the borrower will collect and remit the difference between the basic 
rent and payment standard to FmHA or its successor agency under Public 
Law 103-354 as overage to avoid double subsidy on behalf of the tenant.
    (2) Should the PHA inadvertently pay the owner (borrower) more than 
the amount specified in the housing assistance contract between the PHA 
and the owner, the owner shall return the overpayment to the PHA as an 
excess payment
    B The method of calculation and transmittal of the scheduled payment 
to the Finance Office will be in accordance with paragraph IX of exhibit 
H of this subpart.

                          IV Responsibilities.

    A Family. A household family must apply to the PHA and be issued a 
Certificate of Family Participation or a Rental Voucher to obtain the 
appropriate housing assistance. Households receiving housing assistance 
under either program will be responsible for fulfilling all of their 
obligations under the Certificate of Family Participation or Rental 
Voucher issued to them by the PHA and under the lease with the owner. 
However, a lease violation is not necessarily a reason for terminating 
Section 8 assistance.
    B Owner (FmHA or its successor agency under Public Law 103-354 
borrower). Upon being presented a Certificate of Family Participation or 
a Rental Voucher by a family, an owner wishing to participate in the 
program shall sign a Request for Lease Approval (Form HUD 52517-A) which 
is then submitted to the PHA. After PHA approval the owner will execute 
a Housing Assistance Contract (Form HUD 52535-A) with the PHA and a 
lease with the tenant. Owners shall be responsible (and subject to 
review or audit by the PHA or HUD) for performing all of their 
obligations under the contract and lease.
    C FmHA or its successor agency under Public Law 103-354.
    1 FmHA or its successor agency under Public Law 103-354, in 
accordance with existing regulations, will be responsible for normal 
loan servicing and supervision, including but not limited to:
    a Obtaining and reviewing all reports from the borrower in 
accordance with paragraph XIII C of exhibit B of this subpart.
    b Review and approval of budgets and rental rates.
    c Collection of required payments and review of the borrower's 
establishment and maintenance of required accounts.
    2 FmHA or its successor agency under Public Law 103-354 will not be 
responsible for the requirements and conditions of the contract entered 
into between the PHA and owner but will cooperate with HUD and the PHA 
to the extent possible to assure that the borrower carries out all 
obligations under the contract.

                          V Special Conditions.

    A Eligibility of family.
    1 The PHA will determine a household's eligibility before the 
Certificate of Family Participation or Rental Voucher is issued. To be 
eligible for either form of housing assistance, the household's income 
as determined by HUD generally may not exceed the very low-income limit, 
based on 50 percent of the median income for the area. The household's 
eligibility for housing assistance payments under the Rental Voucher 
program continues until the amount payable by the family equals or 
exceeds the payment standard or when the amount payable by the family 
equals or exceeds the rent to owner plus any applicable utility 
allowances. However, when these conditions are exceeded, the family may 
still be able to occupy a rental unit under the FmHA or its successor 
agency under Public Law 103-354 interest credit program if 30 percent of 
the family's adjusted gross income is greater than the lowest 
established rental rate for the unit. In both the Rental Certificate and 
Rental Voucher Programs, the housing assistance contract terminates when 
1 year has elapsed since the last Housing Assistance Payment (HAP) to 
the owner.
    2 Form FmHA or its successor agency under Public Law 103-354 1944-8, 
``Tenant Certification,'' will not be required for tenants who have 
obtained a Certificate of Family Participation or a Rental Voucher from 
the PHA. A copy of the Certificate of Family Participation or the Rental 
Voucher, however, needs to be provided to the FmHA or its successor 
agency under Public Law 103-354 Servicing Official.
    3 At admission, the tenant's adjusted household income must not 
exceed the maximum income limitations (initially in the case of RCH) as 
authorized by FmHA or its successor agency under Public Law 103-354 for 
the project.
    B Security deposits. According to HUD regulations, the owner may 
require a household to pay a security deposit. For certificate 
participants the maximum amount will be the greater of the amount of one 
month's total tenant payment or $50. For voucher participants, the 
security deposit may not exceed the lesser of the limit established by 
the PHA or one month's rent to the owner. Under HUD regulations, if a 
certificate

[[Page 333]]

household vacates a unit and the security deposit is insufficient, the 
owner may claim reimbursement from the PHA in an amount not to exceed 
two month's contract rent. For voucher participants, the owner may claim 
up to one month's rent to owner for amounts owed under the lease. 
Neither program allows claims for reimbursement of unpaid rent for the 
period after the family moves from the unit.
    C Payment for vacated units.
    1 Rental Certificate Program. If a certificate family vacates the 
unit in violation of the provisions of the lease, the owner may receive 
the full housing assistance payment for the month in which the family 
vacates and then in the amount of 80 percent of the contract rent for a 
vacancy period not exceeding an additional month or the expiration or 
other termination of the lease, whichever comes first.
    2 Rental Voucher Program. If the voucher family moves from the unit, 
the owner shall promptly notify the PHA. The PHA shall make no 
additional housing assistance payment to the owner for any month after 
the month in which the family moves out. However, the owner may retain 
the housing assistance payment for the month in which the family moves.
    D Recertification for families with either a Section 8 Rental 
Certificate or Rental Voucher.
    1 The PHA, not the FmHA or its successor agency under Public Law 
103-354 borrower, must reexamine the income and family composition of 
all Rental Certificate and Rental Voucher families at least annually, 
and adjust the housing assistance payment made on behalf of the family 
to reflect any changes in the family's monthly adjusted income, size, or 
composition. Once a HAP contract expires, recertification responsibility 
reverts to the borrower and FmHA or its successor agency under Public 
Law 103-354 forms and income verification and certification requirements 
apply.
    2 All changes in family composition must be reported to the PHA.
    3 A family may request a redetermination of the housing assistance 
payment at any time, based on a change in the family's income, adjusted 
income, size, or composition.
    4 Whether reporting of increases of family income between annual 
recertifications is required is determined by the PHA. The PHA policy 
must be stated in its administrative plan.
    E Rent changes.
    1 When project rents in all units change.
    a Rental Certificate Program. Rents for tenants receiving rental 
certificate assistance under HUD Form 52535-A (Section 8 Existing 
Housing Assistance Payments Contract for Subsidized Units) may change 
after the beginning (day 1) of the HAP contract term for the initial 
leasing of the unit with Section 8 assistance. The amount of the 
contract rent adjusts automatically when the subsidized rent is changed. 
However, the adjustments are subject to rent reasonableness limitations 
which are determined by the PHA. Adjustments may not result in material 
differences between the rents charged for assisted and comparable 
unassisted units as determined by the PHA.
    b Rental Voucher Program. Rents for tenants receiving rental voucher 
assistance may not change until the end of the initial 12 months of the 
individual lease, even though all unit rents may have been changed in 
the meantime. The lease may provide that the owner may increase the 
tenant's rent any time AFTER the first anniversary of the lease, but the 
Owner must give the tenant and the PHA 60 days prior written notice of 
any increase before it takes place.
    2 When tenant household income, size, and composition change. The 
following items apply to both the Section 8 Rental Certificate and 
Rental Voucher Program.
    a The PHA must examine the income and family composition of all 
rental certificate and rental voucher families at least annually and 
adjust the housing assistance payment made on behalf of the family to 
reflect any changes in the family's income, size, or composition.
    b All changes in family composition must be reported to the PHA.
    c A family may request a redetermination of the housing assistance 
payment at any time, based on a change in the family's income, size, or 
composition.
    d Whether reporting of increases of family income between annual 
recertifications is required is determined by the PHA. The PHA policy 
must be stated in its administrative plan.
    (1) Should household income INCREASE to where HUD assistance becomes 
zero, the HAP contract between borrower/owner and the PHA remains in 
effect for 12 more months. When 12 months of ``zero'' assistance occurs, 
the HAP contract automatically terminates. However, if during that year 
the family's income decreases to the level where subsidy is needed 
again, the PHA will resume subsidy payments under the HAP contract after 
notification by the family of the change.
    (2) In both the Rental Certificate and Rental Voucher programs, the 
tenant's lease term runs concurrently with the Housing Assistance 
Contract until the tenant or owner terminates the lease or the PHA 
terminates the contract. In a situation where a tenant's income 
increases to where the tenant does not receive a subsidy for 12 months, 
the owner can offer the tenant a new lease for execution. If the tenant 
fails to execute the new lease after a reasonable time, the owner may 
terminate the tenant's occupancy.
    F Changes in household size and composition.

[[Page 334]]

    1. An increase in household size that results in the occupied unit 
not meeting the PHA occupancy standards or housing quality standards 
(namely, overcrowding) requires the PHA to issue the household a new 
rental certificate or rental voucher for a larger unit. The PHA must 
provide assistance to the family in locating another unit. The PHA may 
not terminate the current contract unless the family has rejected with 
good cause the offer of a new unit.
    2. If the OWNER fails to maintain the dwelling unit at acceptable 
housing quality standards, the PHA may, after unsuccessful efforts to 
correct the problem, terminate or abate the housing assistance payments, 
even though the household continues to occupy the unit.
    3. A decrease in household size will not necessarily require the 
household to move. In the Rental Voucher Program, the household may rent 
a unit with greater number of bedrooms than indicated on the housing 
voucher and still receive housing assistance. In the Rental Certificate 
Program, the family may continue to receive assistance in the unit if 
the gross rent (contract rent plus utility allowance) is within the fair 
market rent for the smaller size unit appropriate for the size and 
composition of the family.
    G Limitation of owner's participation in the two programs. HUD's 
regulations provide that assistance under Section 8 Certificates will 
not exceed 40 percent of the total number of units in the project; 
however, this limitation may be exceeded on a case-by-case basis for the 
purpose of relieving hardship of a particular household or households 
with the approval of the HUD field office. There is no corresponding 
limit under the HUD Rental Voucher program. The HUD limits shall not 
affect the number of rental assistance units the project receives 
through FmHA or its successor agency under Public Law 103-354.
    H Special problems. Any problems on utilizing either the HUD Section 
8 Certificate or the Rental Voucher program for existing RRH projects 
not covered by this exhibit should be referred to the National Office by 
the State Director.

 Exhibit J to Subpart C of Part 1930--Management of Congregate Housing 
                             and Group Homes

    I Purpose: This exhibit prescribes additional requirements for the 
management of congregate housing and group homes. It applies in addition 
to other requirements in this subpart.
    II Objective: The objective in the management of congregate and 
group home housing is to provide shelter and predetermined services as 
separate components, based on a market study identification of need, 
that are affordable to the housing's tenant base. It is further the 
objective to permit resident tenants to cover their individual medical 
and discretionary needs, and/or service needs or preferences not 
provided or arranged by the housing provider, within their own 
financial, familial and social resources.
    III Definitions:
    Congregate housing. Residential housing for persons or families who 
are elderly, or have handicaps, or disabilities, consisting of private 
apartments and central dining facilities in which a number of 
preestablished services are provided to tenants (short of those services 
provided by a health care facility that provides health related care and 
services recognized by the medicaid program). Tenants requiring 
additional services not provided by the facility will acquire them or 
provide for them within their own financial, familial, or social 
resources.
    Group home. Housing that is occupied by individuals who are elderly 
or have handicaps or disabilities, sharing living space within a rental 
unit in which a group home resident assistant may be required.
    Service agreement. A written agreement between the borrower and the 
congregate or group home service provider detailing the specific service 
to be provided, the cost of the service, and the length of time the 
service will be provided.
    Service contract. A written contract between the borrower and the 
tenant listing the package of services selected by the tenant that will 
be provided or arranged by the borrower, the fee or fees to be charged, 
and applicable conditions and agreements pertaining thereto.
    Service plan. A written plan describing how services will be 
provided to congregate housing or group home projects. At a minimum, the 
plan must specify the services to be provided, the frequency of the 
services, who will provide the services, how tenants will be advised of 
the availability of services, and the staff needed to provide the 
services.
    Tenant base. The demographic and economic profile of eligible people 
in a housing market area who would benefit, whether by need or 
preference, from the housing and supportive services provided by a 
congregate housing or group home facility located in the market area.
    IV Rent Subsidy Opportunities: Congregate housing and group homes 
are subject to the provisions of paragraph IV of exhibit B of this 
subpart. Subsidy discussed in that paragraph cannot be used to pay for 
services in congregate housing or group homes.
    V Management Operations: Borrowers must comply with paragraph V of 
exhibit B of this subpart in managing congregate housing and group 
homes. In addition, borrowers must submit a service plan that explains 
how services will be provided.
    A Borrower's experience. Borrowers and management agents must 
outline their experience and plans for providing congregate

[[Page 335]]

and group home services when completing the management outline in either 
exhibit B-4 or B-5 of this subpart. Borrowers who are not experienced 
with congregate housing/group homes must obtain assistance from 
organizations or individuals experienced with congregate issues in 
developing management and servicing plans. The service provider's 
experience and ability to furnish the services must be documented.
    B Management plan. In addition to the general requirements for a 
management plan described at paragraph V A of exhibit B of this subpart, 
the management plan should describe the plan for management of features 
unique and essential to congregate/group home housing. This portion of 
an overall management plan may either be incorporated within the 
framework of the management plan or as an addendum to the plan. The 
following areas should be described:
    1 Tenant mix. For congregate housing, describe the mix of tenants 
who will have a greater number of services and tenants who will have a 
lesser number of services that the project is designed to accommodate. 
For group home housing, describe the ``group(s)'' of tenants the group 
home is intending to serve such as elderly tenants, developmentally 
disabled, or mentally impaired persons.
    2 Marketing plan. Describe the strategies, ways and means that 
marketing and advertising will be focused to attract and retain tenants 
from the market area (tenant base) that would benefit by the congregate/
group home housing project.
    3 Service package. Describe the basic and any alternative 
``package'' of service(s), or combination of service packages, that a 
tenant may acquire at the project. Describe any deviations to a service 
package that can be accommodated on an individual tenant basis by the 
project in a reasonable and practical manner.
    4 Referral service. Describe the plan for identifying other services 
available to tenants and for establishing liaison between the project 
and the other services. Describe the plan to make the information of 
such services available and known to tenants. Describe what arrangements 
the project can provide as part of a service package to help tenants use 
referral services.
    5 Tenant consultation. Describe how the project management staff 
will use tenant consultation to assist tenants with information, 
modification of service package, referral to medical, clinical, family 
or other services, and identifying what, if any, reasonable 
accommodations or assistance are needed and whether they are feasible 
and practical to provide.
    6 Emergency evacuation plan. Describe what the project will do to 
inform and train tenants on safe evacuation of an apartment and 
building. Describe which community/public services will be informed 
about and incorporated into the project evacuation plan.
    C Service plan. Congregate housing/group home borrowers must submit 
a service plan as defined in paragraph III of this exhibit. See exhibit 
E of subpart E of part 1944 of this chapter for guidance on the issues 
that should be included in the plan. The service plan will be an 
addendum to the management plan when appropriate, or subject to the 
signature and authorization requirements of the management plan when the 
service provider is not the borrower or management agent.
    D Service agreements. Borrowers must submit a service agreement for 
each service they do not provide directly. The agreement must stipulate 
the specific service to be provided, the cost of the service and the 
length of time the service will be provided. The service agreement will 
be an addendum to the management agreement when appropriate, or subject 
to the signature and authorization requirements of the management 
agreement when the service provider is not the borrower or management 
agent.

Initial service agreements must be effective for at least 1 year after 
the project becomes operational. Subsequent agreements must be effective 
for at least 1 year.
    E Service contract. Borrowers must submit a sample of the service 
contract for Agency review for compliance with Fair Housing Act 
requirements/restrictions and Agency requirements in or referenced by 
this subpart. The service contract may not be a requirement for 
occupancy in the congregate housing project and it must be made separate 
and apart from the occupancy lease agreement.
    VI Renting Procedure: In addition to meeting the conditions of 
paragraph VI of exhibit B of this subpart, borrowers must meet the 
following conditions.
    A Eligible tenants. Tenants must meet the general provisions of 
paragraph VI D of exhibit B of this subpart and be eligible to occupy 
congregate or group home housing as defined in paragraph III of this 
exhibit. Borrowers must be careful to follow the condition described in 
paragraph VI D 1 i of exhibit B of this subpart when inquiring about the 
applicant's or tenant's request for congregate/group home housing and 
the service it provides.
    B Tenant selection. Borrowers must meet the provisions of paragraph 
VI H of exhibit B of this subpart. Borrowers should be further guided by 
the following in selecting tenants for congregate housing and group 
homes:
    1 Congregate housing.
    a Tenant mix. It is the primary intent of a congregate housing 
project to provide or arrange for service packages made up of various 
component services to serve the needs of tenants needing such services. 
If it is not feasible to provide service packages to all

[[Page 336]]

tenants, the borrower may serve tenants needing services and tenants not 
needing services. The number of tenants that can be served with service 
package(s) will be described in the project management plan. Project 
management should be consulted when establishing the tenant mix. The 
plan should establish a percentage of tenants who will use a service 
package with a greater number of component services as differentiated 
from tenants whose service package will contain fewer services. As 
existing tenants age and new tenants move in, the percentage may 
fluctuate. Farmers Home Association must concur with the proposed plan.
    b Selecting services needed or wanted by tenants in congregate 
housing.
    (1) It is the borrower's responsibility to inform applicants or 
tenants about the supportive services provided at or by the congregate 
project. Such services or service packages need to be identified on the 
project's application form as part of an application package.
    (2) It is the applicant's or tenant's responsibility to identify and 
request the services or service package provided by the project which 
that person desires or needs.
    (3) The borrower may have the applicant/tenant provide only such 
essential information about the person's desire for provided service(s) 
to determine whether the project provides the services desired by the 
applicant/tenant and/or to determine how to best serve the applicant's/
tenant's request for services with reasonable accommodation, referral 
services, etc. The essential information may include an explanation by 
the applicant/tenant. In the case of a group home, it may also include 
an assessment by a professional medical examiner or practitioner, social 
service caseworker, representative of an advocacy group, member of the 
clergy, etc. that the tenant/applicant provides to support the 
application for housing and services.
    c Waiting lists. To sustain the number of tenants requesting 
services, management may maintain waiting lists for tenants requesting 
large component service packages, small component service packages, and 
those wanting a service package at a later time. Management may choose 
tenants from the lists in such manner to maintain the feasibility in 
providing services, however, priority in tenant selection should go to 
an applicant requesting a service package over one requesting a service 
package at some later date. The other provisions contained in paragraph 
VI H of exhibit B of this subpart concerning waiting lists are 
applicable.
    2 Group home. A group home may limit occupancy to a specific group 
of tenants. For example, a group home may limit occupancy to eligible 
elderly tenants, developmentally disabled people, or mentally impaired 
tenants. This limitation will be outlined in the borrower's management 
plan. The following will apply to group homes.
    a Applicants for group home housing must demonstrate their need for 
such housing.
    b Tenants of group homes cannot be required to be a part of an 
ongoing training or rehabilitation program sponsored by the applicant or 
other organization.
    c Tenants should be selected from the local area before considering 
other areas.
    C Determining per unit rental rates for group living arrangements. A 
``unit'' in a group home consists of the space occupied by a specific 
tenant household. It may be a traditional apartment unit, a bedroom, or 
a portion of a bedroom. Rents are determined as follows:
    1 When all units are of equal size, divide operational costs 
equally.
    2 When all units are not of equal size, determine the size of each 
unit and divide operational costs accordingly.
    a The size of traditional units is their square footage.
    b The size of nontraditional units is the bedroom or portion of 
bedroom occupied by the household and portion of the common area to be 
used by all potential units in nontraditional units.
    3 A unit occupied by a resident assistant is not considered a 
revenue producing unit and would be excluded from the rent 
determination.
    VII Verification and Certification of Tenant Income, and/or 
Employment and Review of Support Services: The provisions of paragraph 
VII of exhibit B of this subpart apply. In addition to recertifying 
income, management should consult with each tenant to explain the 
available support services and determine if the tenant desires any 
available services not presently used and/or if any other practical and 
feasible accommodations can be provided to the tenant.
    VIII Lease Agreements: In addition to the conditions contained in 
paragraph VIII of exhibit B of this subpart, the following should be 
addressed:
    A Tenants who request services in congregate housing. If a tenant 
requests services, the lease must contain the following clauses:
    1 ``I understand that use of the service package I have selected is 
not mandatory, and if I later choose to modify or not renew my service 
contract, such action on my part will not cause default under the terms 
of this lease agreement. I further understand and agree that I may not 
use any aspect of dissatisfaction with my service contract as grounds to 
withhold rents due under the terms of this lease agreement.''
    2 ``The lessor warrants that the following basic services will be 
made available to all tenants for a fee separate and apart from any rent 
described in the terms of this lease. The basic services are: ----------
----------.


[[Page 337]]


    If these services cannot later be provided, such failure or 
inability to provide the services will not constitute a breach of this 
lease agreement and the lessor will hold the tenant harmless should the 
tenant elect to terminate this lease on the grounds that provision of 
these services was cause for the tenant to apply for and accept 
occupancy in this congregate housing project.''

    B Services provided to people other than tenants of FmHA or its 
successor agency under Public Law 103-354 financed congregate housing. 
If the meal facility serves people other than the tenants of the 
project, the borrower must obtain a lease from the service provider and 
require payment sufficient to cover the annual operating expenses, debt 
services and reserve account attributable to the portion of increased 
space that is in excess of the needs of the tenants in the project. 
Tenants of the congregate housing must have priority in receiving the 
services. When the facilities are provided with loan funds, the 
following conditions must be met:
    1 The services to be provided and the fees to be charged (if any) 
must be fully documented in the service plan, if provided by the 
applicant, or in the service plan and lease agreement if the services 
will be provided by others.
    2 Any lease agreement must be approved by the State Director or the 
loan approving official and contain the following statement: ``This 
agreement will not be effective until approved by the State Director of 
the Farmers Home Administration or its successor agency under Public Law 
103-354, U.S. Department of Agriculture, or the State Director's 
delegated representative.''
    IX Rent Collection: The provisions of paragraph IX of exhibit B of 
this subpart will apply for services as well as rent. Tenants must pay 
charges for the services as documented in their lease. The payment for 
rent or services may be made separately or combined; however, payments 
for rent and services must be accounted for separately.
    X Borrower Project Budgets: Borrowers must separate the revenue and 
expenses of project operations from the service component. Form FmHA or 
its successor agency under Public Law 103-354 1930-7, ``Multiple Family 
Housing Project Budget,'' must reflect project operations only. Also, if 
project employees provide any part of the services, the project 
operation budget and the services budget must reflect the proration of 
employee compensation between the respective budgets as further 
described in exhibit E of subpart E of part 1944 of this chapter.
    XI Accounting and Reporting Requirements and Financial Management 
Analysis: Borrowers must maintain separate financial records for the 
operation and maintenance of the project and the service component. 
Funds allocated to the operation and maintenance of the project may not 
be used to supplement the cost of services, nor may service component 
funds be used to supplement the project operation and maintenance. 
Detailed financial reports on the service component will not be required 
unless specifically requested by FmHA or its successor agency under 
Public Law 103-354, and then only to the extent necessary for FmHA or 
its successor agency under Public Law 103-354 and the borrower to 
discuss the affordability (and competitiveness) of the service component 
by the tenant base in keeping with the objective stated in paragraph II 
of this exhibit. The project audit, or verification of accounts on Form 
FmHA or its successor agency under Public Law 103-354 1930-8, ``Multiple 
Family Housing Balance Sheet,'' together with an accompanying Form 1930-
7 showing actuals, must allocate revenue and expense between project 
operations and the service component.
    XII Termination of Tenancy and Eviction. In keeping with the spirit 
and provisions of the Fair Housing Amendments Act of 1988, a tenant 
living in congregate or group home housing project may remain as long as 
they are eligible to occupy and the tenant expresses or otherwise 
maintains they can care for themself with or without services provided 
by the project, or by familial or social services from outside the 
project. Tenants are otherwise bound by the terms of their lease and 
their occupancy may be terminated only according to the provisions 
contained in paragraph XIV of exhibit B of this subpart.

                       PARTS 1931	1939 [RESERVED]

[[Page 339]]



                              FINDING AIDS




  --------------------------------------------------------------------

  A list of CFR titles, subtitles, chapters, subchapters and parts and 
an alphabetical list of agencies publishing in the CFR are included in 
the CFR Index and Finding Aids volume to the Code of Federal Regulations 
which is published separately and revised annually.

  Table of CFR Titles and Chapters
  Alphabetical List of Agencies Appearing in the CFR
  List of CFR Sections Affected

[[Page 341]]



                    Table of CFR Titles and Chapters




                     (Revised as of January 1, 2004)

                      Title 1--General Provisions

         I  Administrative Committee of the Federal Register 
                (Parts 1--49)
        II  Office of the Federal Register (Parts 50--299)
        IV  Miscellaneous Agencies (Parts 400--500)

                          Title 2 [Reserved]

                        Title 3--The President

         I  Executive Office of the President (Parts 100--199)

                           Title 4--Accounts

         I  General Accounting Office (Parts 1--99)

                   Title 5--Administrative Personnel

         I  Office of Personnel Management (Parts 1--1199)
        II  Merit Systems Protection Board (Parts 1200--1299)
       III  Office of Management and Budget (Parts 1300--1399)
         V  The International Organizations Employees Loyalty 
                Board (Parts 1500--1599)
        VI  Federal Retirement Thrift Investment Board (Parts 
                1600--1699)
      VIII  Office of Special Counsel (Parts 1800--1899)
        IX  Appalachian Regional Commission (Parts 1900--1999)
        XI  Armed Forces Retirement Home (Part 2100)
       XIV  Federal Labor Relations Authority, General Counsel of 
                the Federal Labor Relations Authority and Federal 
                Service Impasses Panel (Parts 2400--2499)
        XV  Office of Administration, Executive Office of the 
                President (Parts 2500--2599)
       XVI  Office of Government Ethics (Parts 2600--2699)
       XXI  Department of the Treasury (Parts 3100--3199)
      XXII  Federal Deposit Insurance Corporation (Part 3201)
     XXIII  Department of Energy (Part 3301)
      XXIV  Federal Energy Regulatory Commission (Part 3401)
       XXV  Department of the Interior (Part 3501)
      XXVI  Department of Defense (Part 3601)

[[Page 342]]

    XXVIII  Department of Justice (Part 3801)
      XXIX  Federal Communications Commission (Parts 3900--3999)
       XXX  Farm Credit System Insurance Corporation (Parts 4000--
                4099)
      XXXI  Farm Credit Administration (Parts 4100--4199)
    XXXIII  Overseas Private Investment Corporation (Part 4301)
      XXXV  Office of Personnel Management (Part 4501)
        XL  Interstate Commerce Commission (Part 5001)
       XLI  Commodity Futures Trading Commission (Part 5101)
      XLII  Department of Labor (Part 5201)
     XLIII  National Science Foundation (Part 5301)
       XLV  Department of Health and Human Services (Part 5501)
      XLVI  Postal Rate Commission (Part 5601)
     XLVII  Federal Trade Commission (Part 5701)
    XLVIII  Nuclear Regulatory Commission (Part 5801)
         L  Department of Transportation (Part 6001)
       LII  Export-Import Bank of the United States (Part 6201)
      LIII  Department of Education (Parts 6300--6399)
       LIV  Environmental Protection Agency (Part 6401)
        LV  National Endowment for the Arts (Part 6501)
       LVI  National Endowment for the Humanities (Part 6601)
      LVII  General Services Administration (Part 6701)
     LVIII  Board of Governors of the Federal Reserve System (Part 
                6801)
       LIX  National Aeronautics and Space Administration (Part 
                6901)
        LX  United States Postal Service (Part 7001)
       LXI  National Labor Relations Board (Part 7101)
      LXII  Equal Employment Opportunity Commission (Part 7201)
     LXIII  Inter-American Foundation (Part 7301)
       LXV  Department of Housing and Urban Development (Part 
                7501)
      LXVI  National Archives and Records Administration (Part 
                7601)
     LXVII  Institute of Museum and Library Services (Part 7701)
      LXIX  Tennessee Valley Authority (Part 7901)
      LXXI  Consumer Product Safety Commission (Part 8101)
    LXXIII  Department of Agriculture (Part 8301)
     LXXIV  Federal Mine Safety and Health Review Commission (Part 
                8401)
     LXXVI  Federal Retirement Thrift Investment Board (Part 8601)
    LXXVII  Office of Management and Budget (Part 8701)

                      Title 6--Homeland Security

         I  Department of Homeland Security, Office of the 
                Secretary (Parts 0--99)

[[Page 343]]

                         Title 7--Agriculture

            Subtitle A--Office of the Secretary of Agriculture 
                (Parts 0--26)
            Subtitle B--Regulations of the Department of 
                Agriculture
         I  Agricultural Marketing Service (Standards, 
                Inspections, Marketing Practices), Department of 
                Agriculture (Parts 27--209)
        II  Food and Nutrition Service, Department of Agriculture 
                (Parts 210--299)
       III  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 300--399)
        IV  Federal Crop Insurance Corporation, Department of 
                Agriculture (Parts 400--499)
         V  Agricultural Research Service, Department of 
                Agriculture (Parts 500--599)
        VI  Natural Resources Conservation Service, Department of 
                Agriculture (Parts 600--699)
       VII  Farm Service Agency, Department of Agriculture (Parts 
                700--799)
      VIII  Grain Inspection, Packers and Stockyards 
                Administration (Federal Grain Inspection Service), 
                Department of Agriculture (Parts 800--899)
        IX  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Fruits, Vegetables, Nuts), Department 
                of Agriculture (Parts 900--999)
         X  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Milk), Department of Agriculture 
                (Parts 1000--1199)
        XI  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Miscellaneous Commodities), Department 
                of Agriculture (Parts 1200--1299)
       XIV  Commodity Credit Corporation, Department of 
                Agriculture (Parts 1400--1499)
        XV  Foreign Agricultural Service, Department of 
                Agriculture (Parts 1500--1599)
       XVI  Rural Telephone Bank, Department of Agriculture (Parts 
                1600--1699)
      XVII  Rural Utilities Service, Department of Agriculture 
                (Parts 1700--1799)
     XVIII  Rural Housing Service, Rural Business-Cooperative 
                Service, Rural Utilities Service, and Farm Service 
                Agency, Department of Agriculture (Parts 1800--
                2099)
        XX  Local Television Loan Guarantee Board (Parts 2200--
                2299)
      XXVI  Office of Inspector General, Department of Agriculture 
                (Parts 2600--2699)
     XXVII  Office of Information Resources Management, Department 
                of Agriculture (Parts 2700--2799)
    XXVIII  Office of Operations, Department of Agriculture (Parts 
                2800--2899)
      XXIX  Office of Energy, Department of Agriculture (Parts 
                2900--2999)
       XXX  Office of the Chief Financial Officer, Department of 
                Agriculture (Parts 3000--3099)

[[Page 344]]

      XXXI  Office of Environmental Quality, Department of 
                Agriculture (Parts 3100--3199)
     XXXII  Office of Procurement and Property Management, 
                Department of Agriculture (Parts 3200--3299)
    XXXIII  Office of Transportation, Department of Agriculture 
                (Parts 3300--3399)
     XXXIV  Cooperative State Research, Education, and Extension 
                Service, Department of Agriculture (Parts 3400--
                3499)
      XXXV  Rural Housing Service, Department of Agriculture 
                (Parts 3500--3599)
     XXXVI  National Agricultural Statistics Service, Department 
                of Agriculture (Parts 3600--3699)
    XXXVII  Economic Research Service, Department of Agriculture 
                (Parts 3700--3799)
   XXXVIII  World Agricultural Outlook Board, Department of 
                Agriculture (Parts 3800--3899)
       XLI  [Reserved]
      XLII  Rural Business-Cooperative Service and Rural Utilities 
                Service, Department of Agriculture (Parts 4200--
                4299)

                    Title 8--Aliens and Nationality

         I  Department of Homeland Security (Immigration and 
                Naturalization) (Parts 1--499)
         V  Executive Office for Immigration Review, Department of 
                Justice (Parts 1000--1399)

                 Title 9--Animals and Animal Products

         I  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 1--199)
        II  Grain Inspection, Packers and Stockyards 
                Administration (Packers and Stockyards Programs), 
                Department of Agriculture (Parts 200--299)
       III  Food Safety and Inspection Service, Department of 
                Agriculture (Parts 300--599)

                           Title 10--Energy

         I  Nuclear Regulatory Commission (Parts 0--199)
        II  Department of Energy (Parts 200--699)
       III  Department of Energy (Parts 700--999)
         X  Department of Energy (General Provisions) (Parts 
                1000--1099)
      XVII  Defense Nuclear Facilities Safety Board (Parts 1700--
                1799)
     XVIII  Northeast Interstate Low-Level Radioactive Waste 
                Commission (Part 1800)

[[Page 345]]

                      Title 11--Federal Elections

         I  Federal Election Commission (Parts 1--9099)

                      Title 12--Banks and Banking

         I  Comptroller of the Currency, Department of the 
                Treasury (Parts 1--199)
        II  Federal Reserve System (Parts 200--299)
       III  Federal Deposit Insurance Corporation (Parts 300--399)
        IV  Export-Import Bank of the United States (Parts 400--
                499)
         V  Office of Thrift Supervision, Department of the 
                Treasury (Parts 500--599)
        VI  Farm Credit Administration (Parts 600--699)
       VII  National Credit Union Administration (Parts 700--799)
      VIII  Federal Financing Bank (Parts 800--899)
        IX  Federal Housing Finance Board (Parts 900--999)
        XI  Federal Financial Institutions Examination Council 
                (Parts 1100--1199)
       XIV  Farm Credit System Insurance Corporation (Parts 1400--
                1499)
        XV  Department of the Treasury (Parts 1500--1599)
      XVII  Office of Federal Housing Enterprise Oversight, 
                Department of Housing and Urban Development (Parts 
                1700--1799)
     XVIII  Community Development Financial Institutions Fund, 
                Department of the Treasury (Parts 1800--1899)

               Title 13--Business Credit and Assistance

         I  Small Business Administration (Parts 1--199)
       III  Economic Development Administration, Department of 
                Commerce (Parts 300--399)
        IV  Emergency Steel Guarantee Loan Board, Department of 
                Commerce (Parts 400--499)
         V  Emergency Oil and Gas Guaranteed Loan Board, 
                Department of Commerce (Parts 500--599)

                    Title 14--Aeronautics and Space

         I  Federal Aviation Administration, Department of 
                Transportation (Parts 1--199)
        II  Office of the Secretary, Department of Transportation 
                (Aviation Proceedings) (Parts 200--399)
       III  Commercial Space Transportation, Federal Aviation 
                Administration, Department of Transportation 
                (Parts 400--499)
         V  National Aeronautics and Space Administration (Parts 
                1200--1299)
        VI  Air Transportation System Stabilization (Parts 1300--
                1399)

[[Page 346]]

                 Title 15--Commerce and Foreign Trade

            Subtitle A--Office of the Secretary of Commerce (Parts 
                0--29)
            Subtitle B--Regulations Relating to Commerce and 
                Foreign Trade
         I  Bureau of the Census, Department of Commerce (Parts 
                30--199)
        II  National Institute of Standards and Technology, 
                Department of Commerce (Parts 200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  Foreign-Trade Zones Board, Department of Commerce 
                (Parts 400--499)
       VII  Bureau of Industry and Security, Department of 
                Commerce (Parts 700--799)
      VIII  Bureau of Economic Analysis, Department of Commerce 
                (Parts 800--899)
        IX  National Oceanic and Atmospheric Administration, 
                Department of Commerce (Parts 900--999)
        XI  Technology Administration, Department of Commerce 
                (Parts 1100--1199)
      XIII  East-West Foreign Trade Board (Parts 1300--1399)
       XIV  Minority Business Development Agency (Parts 1400--
                1499)
            Subtitle C--Regulations Relating to Foreign Trade 
                Agreements
        XX  Office of the United States Trade Representative 
                (Parts 2000--2099)
            Subtitle D--Regulations Relating to Telecommunications 
                and Information
     XXIII  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                2300--2399)

                    Title 16--Commercial Practices

         I  Federal Trade Commission (Parts 0--999)
        II  Consumer Product Safety Commission (Parts 1000--1799)

             Title 17--Commodity and Securities Exchanges

         I  Commodity Futures Trading Commission (Parts 1--199)
        II  Securities and Exchange Commission (Parts 200--399)
        IV  Department of the Treasury (Parts 400--499)

          Title 18--Conservation of Power and Water Resources

         I  Federal Energy Regulatory Commission, Department of 
                Energy (Parts 1--399)
       III  Delaware River Basin Commission (Parts 400--499)
        VI  Water Resources Council (Parts 700--799)

[[Page 347]]

      VIII  Susquehanna River Basin Commission (Parts 800--899)
      XIII  Tennessee Valley Authority (Parts 1300--1399)

                       Title 19--Customs Duties

         I  Bureau of Customs and Border Protection, Department of 
                Homeland Security; Department of the Treasury 
                (Parts 0--199)
        II  United States International Trade Commission (Parts 
                200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  Bureau of Immigration and Customs Enforcement, 
                Department of Homeland Security (Parts 400--599)

                     Title 20--Employees' Benefits

         I  Office of Workers' Compensation Programs, Department 
                of Labor (Parts 1--199)
        II  Railroad Retirement Board (Parts 200--399)
       III  Social Security Administration (Parts 400--499)
        IV  Employees' Compensation Appeals Board, Department of 
                Labor (Parts 500--599)
         V  Employment and Training Administration, Department of 
                Labor (Parts 600--699)
        VI  Employment Standards Administration, Department of 
                Labor (Parts 700--799)
       VII  Benefits Review Board, Department of Labor (Parts 
                800--899)
      VIII  Joint Board for the Enrollment of Actuaries (Parts 
                900--999)
        IX  Office of the Assistant Secretary for Veterans' 
                Employment and Training, Department of Labor 
                (Parts 1000--1099)

                       Title 21--Food and Drugs

         I  Food and Drug Administration, Department of Health and 
                Human Services (Parts 1--1299)
        II  Drug Enforcement Administration, Department of Justice 
                (Parts 1300--1399)
       III  Office of National Drug Control Policy (Parts 1400--
                1499)

                      Title 22--Foreign Relations

         I  Department of State (Parts 1--199)
        II  Agency for International Development (Parts 200--299)
       III  Peace Corps (Parts 300--399)
        IV  International Joint Commission, United States and 
                Canada (Parts 400--499)
         V  Broadcasting Board of Governors (Parts 500--599)
       VII  Overseas Private Investment Corporation (Parts 700--
                799)
        IX  Foreign Service Grievance Board Regulations (Parts 
                900--999)

[[Page 348]]

         X  Inter-American Foundation (Parts 1000--1099)
        XI  International Boundary and Water Commission, United 
                States and Mexico, United States Section (Parts 
                1100--1199)
       XII  United States International Development Cooperation 
                Agency (Parts 1200--1299)
       XIV  Foreign Service Labor Relations Board; Federal Labor 
                Relations Authority; General Counsel of the 
                Federal Labor Relations Authority; and the Foreign 
                Service Impasse Disputes Panel (Parts 1400--1499)
        XV  African Development Foundation (Parts 1500--1599)
       XVI  Japan-United States Friendship Commission (Parts 
                1600--1699)
      XVII  United States Institute of Peace (Parts 1700--1799)

                          Title 23--Highways

         I  Federal Highway Administration, Department of 
                Transportation (Parts 1--999)
        II  National Highway Traffic Safety Administration and 
                Federal Highway Administration, Department of 
                Transportation (Parts 1200--1299)
       III  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 1300--1399)

                Title 24--Housing and Urban Development

            Subtitle A--Office of the Secretary, Department of 
                Housing and Urban Development (Parts 0--99)
            Subtitle B--Regulations Relating to Housing and Urban 
                Development
         I  Office of Assistant Secretary for Equal Opportunity, 
                Department of Housing and Urban Development (Parts 
                100--199)
        II  Office of Assistant Secretary for Housing-Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 200--299)
       III  Government National Mortgage Association, Department 
                of Housing and Urban Development (Parts 300--399)
        IV  Office of Housing and Office of Multifamily Housing 
                Assistance Restructuring, Department of Housing 
                and Urban Development (Parts 400--499)
         V  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 500--599)
        VI  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 600--699) [Reserved]
       VII  Office of the Secretary, Department of Housing and 
                Urban Development (Housing Assistance Programs and 
                Public and Indian Housing Programs) (Parts 700--
                799)

[[Page 349]]

      VIII  Office of the Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Section 8 Housing Assistance 
                Programs, Section 202 Direct Loan Program, Section 
                202 Supportive Housing for the Elderly Program and 
                Section 811 Supportive Housing for Persons With 
                Disabilities Program) (Parts 800--899)
        IX  Office of Assistant Secretary for Public and Indian 
                Housing, Department of Housing and Urban 
                Development (Parts 900--1699)
         X  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Interstate Land Sales 
                Registration Program) (Parts 1700--1799)
       XII  Office of Inspector General, Department of Housing and 
                Urban Development (Parts 2000--2099)
        XX  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 3200--3899)
       XXV  Neighborhood Reinvestment Corporation (Parts 4100--
                4199)

                           Title 25--Indians

         I  Bureau of Indian Affairs, Department of the Interior 
                (Parts 1--299)
        II  Indian Arts and Crafts Board, Department of the 
                Interior (Parts 300--399)
       III  National Indian Gaming Commission, Department of the 
                Interior (Parts 500--599)
        IV  Office of Navajo and Hopi Indian Relocation (Parts 
                700--799)
         V  Bureau of Indian Affairs, Department of the Interior, 
                and Indian Health Service, Department of Health 
                and Human Services (Part 900)
        VI  Office of the Assistant Secretary-Indian Affairs, 
                Department of the Interior (Parts 1000--1199)
       VII  Office of the Special Trustee for American Indians, 
                Department of the Interior (Part 1200)

                      Title 26--Internal Revenue

         I  Internal Revenue Service, Department of the Treasury 
                (Parts 1--899)

           Title 27--Alcohol, Tobacco Products and Firearms

         I  Alcohol and Tobacco Tax and Trade Bureau, Department 
                of the Treasury (Parts 1--399)
        II  Bureau of Alcohol, Tobacco, Firearms, and Explosives, 
                Department of Justice (Parts 400--699)

                   Title 28--Judicial Administration

         I  Department of Justice (Parts 0--299)

[[Page 350]]

       III  Federal Prison Industries, Inc., Department of Justice 
                (Parts 300--399)
         V  Bureau of Prisons, Department of Justice (Parts 500--
                599)
        VI  Offices of Independent Counsel, Department of Justice 
                (Parts 600--699)
       VII  Office of Independent Counsel (Parts 700--799)
      VIII  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 800--899)
        IX  National Crime Prevention and Privacy Compact Council 
                (Parts 900--999)
        XI  Department of Justice and Department of State (Parts 
                1100--1199)

                            Title 29--Labor

            Subtitle A--Office of the Secretary of Labor (Parts 
                0--99)
            Subtitle B--Regulations Relating to Labor
         I  National Labor Relations Board (Parts 100--199)
        II  Office of Labor-Management Standards, Department of 
                Labor (Parts 200--299)
       III  National Railroad Adjustment Board (Parts 300--399)
        IV  Office of Labor-Management Standards, Department of 
                Labor (Parts 400--499)
         V  Wage and Hour Division, Department of Labor (Parts 
                500--899)
        IX  Construction Industry Collective Bargaining Commission 
                (Parts 900--999)
         X  National Mediation Board (Parts 1200--1299)
       XII  Federal Mediation and Conciliation Service (Parts 
                1400--1499)
       XIV  Equal Employment Opportunity Commission (Parts 1600--
                1699)
      XVII  Occupational Safety and Health Administration, 
                Department of Labor (Parts 1900--1999)
        XX  Occupational Safety and Health Review Commission 
                (Parts 2200--2499)
       XXV  Employee Benefits Security Administration, Department 
                of Labor (Parts 2500--2599)
     XXVII  Federal Mine Safety and Health Review Commission 
                (Parts 2700--2799)
        XL  Pension Benefit Guaranty Corporation (Parts 4000--
                4999)

                      Title 30--Mineral Resources

         I  Mine Safety and Health Administration, Department of 
                Labor (Parts 1--199)
        II  Minerals Management Service, Department of the 
                Interior (Parts 200--299)
       III  Board of Surface Mining and Reclamation Appeals, 
                Department of the Interior (Parts 300--399)
        IV  Geological Survey, Department of the Interior (Parts 
                400--499)

[[Page 351]]

       VII  Office of Surface Mining Reclamation and Enforcement, 
                Department of the Interior (Parts 700--999)

                 Title 31--Money and Finance: Treasury

            Subtitle A--Office of the Secretary of the Treasury 
                (Parts 0--50)
            Subtitle B--Regulations Relating to Money and Finance
         I  Monetary Offices, Department of the Treasury (Parts 
                51--199)
        II  Fiscal Service, Department of the Treasury (Parts 
                200--399)
        IV  Secret Service, Department of the Treasury (Parts 
                400--499)
         V  Office of Foreign Assets Control, Department of the 
                Treasury (Parts 500--599)
        VI  Bureau of Engraving and Printing, Department of the 
                Treasury (Parts 600--699)
       VII  Federal Law Enforcement Training Center, Department of 
                the Treasury (Parts 700--799)
      VIII  Office of International Investment, Department of the 
                Treasury (Parts 800--899)
        IX  Federal Claims Collection Standards (Department of the 
                Treasury--Department of Justice) (Parts 900--999)

                      Title 32--National Defense

            Subtitle A--Department of Defense
         I  Office of the Secretary of Defense (Parts 1--399)
         V  Department of the Army (Parts 400--699)
        VI  Department of the Navy (Parts 700--799)
       VII  Department of the Air Force (Parts 800--1099)
            Subtitle B--Other Regulations Relating to National 
                Defense
       XII  Defense Logistics Agency (Parts 1200--1299)
       XVI  Selective Service System (Parts 1600--1699)
     XVIII  National Counterintelligence Center (Parts 1800--1899)
       XIX  Central Intelligence Agency (Parts 1900--1999)
        XX  Information Security Oversight Office, National 
                Archives and Records Administration (Parts 2000--
                2099)
       XXI  National Security Council (Parts 2100--2199)
      XXIV  Office of Science and Technology Policy (Parts 2400--
                2499)
     XXVII  Office for Micronesian Status Negotiations (Parts 
                2700--2799)
    XXVIII  Office of the Vice President of the United States 
                (Parts 2800--2899)

               Title 33--Navigation and Navigable Waters

         I  Coast Guard, Department of Homeland Security (Parts 
                1--199)
        II  Corps of Engineers, Department of the Army (Parts 
                200--399)

[[Page 352]]

        IV  Saint Lawrence Seaway Development Corporation, 
                Department of Transportation (Parts 400--499)

                          Title 34--Education

            Subtitle A--Office of the Secretary, Department of 
                Education (Parts 1--99)
            Subtitle B--Regulations of the Offices of the 
                Department of Education
         I  Office for Civil Rights, Department of Education 
                (Parts 100--199)
        II  Office of Elementary and Secondary Education, 
                Department of Education (Parts 200--299)
       III  Office of Special Education and Rehabilitative 
                Services, Department of Education (Parts 300--399)
        IV  Office of Vocational and Adult Education, Department 
                of Education (Parts 400--499)
         V  Office of Bilingual Education and Minority Languages 
                Affairs, Department of Education (Parts 500--599)
        VI  Office of Postsecondary Education, Department of 
                Education (Parts 600--699)
        XI  National Institute for Literacy (Parts 1100--1199)
            Subtitle C--Regulations Relating to Education
       XII  National Council on Disability (Parts 1200--1299)

                        Title 35--Panama Canal

         I  Panama Canal Regulations (Parts 1--299)

             Title 36--Parks, Forests, and Public Property

         I  National Park Service, Department of the Interior 
                (Parts 1--199)
        II  Forest Service, Department of Agriculture (Parts 200--
                299)
       III  Corps of Engineers, Department of the Army (Parts 
                300--399)
        IV  American Battle Monuments Commission (Parts 400--499)
         V  Smithsonian Institution (Parts 500--599)
       VII  Library of Congress (Parts 700--799)
      VIII  Advisory Council on Historic Preservation (Parts 800--
                899)
        IX  Pennsylvania Avenue Development Corporation (Parts 
                900--999)
         X  Presidio Trust (Parts 1000--1099)
        XI  Architectural and Transportation Barriers Compliance 
                Board (Parts 1100--1199)
       XII  National Archives and Records Administration (Parts 
                1200--1299)
        XV  Oklahoma City National Memorial Trust (Part 1501)
       XVI  Morris K. Udall Scholarship and Excellence in National 
                Environmental Policy Foundation (Parts 1600--1699)

[[Page 353]]

             Title 37--Patents, Trademarks, and Copyrights

         I  United States Patent and Trademark Office, Department 
                of Commerce (Parts 1--199)
        II  Copyright Office, Library of Congress (Parts 200--299)
        IV  Assistant Secretary for Technology Policy, Department 
                of Commerce (Parts 400--499)
         V  Under Secretary for Technology, Department of Commerce 
                (Parts 500--599)

           Title 38--Pensions, Bonuses, and Veterans' Relief

         I  Department of Veterans Affairs (Parts 0--99)

                       Title 39--Postal Service

         I  United States Postal Service (Parts 1--999)
       III  Postal Rate Commission (Parts 3000--3099)

                  Title 40--Protection of Environment

         I  Environmental Protection Agency (Parts 1--1099)
        IV  Environmental Protection Agency and Department of 
                Justice (Parts 1400--1499)
         V  Council on Environmental Quality (Parts 1500--1599)
        VI  Chemical Safety and Hazard Investigation Board (Parts 
                1600--1699)
       VII  Environmental Protection Agency and Department of 
                Defense; Uniform National Discharge Standards for 
                Vessels of the Armed Forces (Parts 1700--1799)

          Title 41--Public Contracts and Property Management

            Subtitle B--Other Provisions Relating to Public 
                Contracts
        50  Public Contracts, Department of Labor (Parts 50-1--50-
                999)
        51  Committee for Purchase From People Who Are Blind or 
                Severely Disabled (Parts 51-1--51-99)
        60  Office of Federal Contract Compliance Programs, Equal 
                Employment Opportunity, Department of Labor (Parts 
                60-1--60-999)
        61  Office of the Assistant Secretary for Veterans' 
                Employment and Training Service, Department of 
                Labor (Parts 61-1--61-999)
            Subtitle C--Federal Property Management Regulations 
                System
       101  Federal Property Management Regulations (Parts 101-1--
                101-99)
       102  Federal Management Regulation (Parts 102-1--102-299)
       105  General Services Administration (Parts 105-1--105-999)
       109  Department of Energy Property Management Regulations 
                (Parts 109-1--109-99)
       114  Department of the Interior (Parts 114-1--114-99)
       115  Environmental Protection Agency (Parts 115-1--115-99)

[[Page 354]]

       128  Department of Justice (Parts 128-1--128-99)
            Subtitle D--Other Provisions Relating to Property 
                Management [Reserved]
            Subtitle E--Federal Information Resources Management 
                Regulations System
       201  Federal Information Resources Management Regulation 
                (Parts 201-1--201-99) [Reserved]
            Subtitle F--Federal Travel Regulation System
       300  General (Parts 300-1--300-99)
       301  Temporary Duty (TDY) Travel Allowances (Parts 301-1--
                301-99)
       302  Relocation Allowances (Parts 302-1--302-99)
       303  Payment of Expenses Connected with the Death of 
                Certain Employees (Part 303-70)
       304  Payment of Travel Expenses from a Non-Federal Source 
                (Parts 304-1--304-99)

                        Title 42--Public Health

         I  Public Health Service, Department of Health and Human 
                Services (Parts 1--199)
        IV  Centers for Medicare & Medicaid Services, Department 
                of Health and Human Services (Parts 400--499)
         V  Office of Inspector General-Health Care, Department of 
                Health and Human Services (Parts 1000--1999)

                   Title 43--Public Lands: Interior

            Subtitle A--Office of the Secretary of the Interior 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Lands
         I  Bureau of Reclamation, Department of the Interior 
                (Parts 200--499)
        II  Bureau of Land Management, Department of the Interior 
                (Parts 1000--9999)
       III  Utah Reclamation Mitigation and Conservation 
                Commission (Parts 10000--10010)

             Title 44--Emergency Management and Assistance

         I  Federal Emergency Management Agency, Department of 
                Homeland Security (Parts 0--399)
        IV  Department of Commerce and Department of 
                Transportation (Parts 400--499)

                       Title 45--Public Welfare

            Subtitle A--Department of Health and Human Services 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Welfare

[[Page 355]]

        II  Office of Family Assistance (Assistance Programs), 
                Administration for Children and Families, 
                Department of Health and Human Services (Parts 
                200--299)
       III  Office of Child Support Enforcement (Child Support 
                Enforcement Program), Administration for Children 
                and Families, Department of Health and Human 
                Services (Parts 300--399)
        IV  Office of Refugee Resettlement, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 400--499)
         V  Foreign Claims Settlement Commission of the United 
                States, Department of Justice (Parts 500--599)
        VI  National Science Foundation (Parts 600--699)
       VII  Commission on Civil Rights (Parts 700--799)
      VIII  Office of Personnel Management (Parts 800--899)
         X  Office of Community Services, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 1000--1099)
        XI  National Foundation on the Arts and the Humanities 
                (Parts 1100--1199)
       XII  Corporation for National and Community Service (Parts 
                1200--1299)
      XIII  Office of Human Development Services, Department of 
                Health and Human Services (Parts 1300--1399)
       XVI  Legal Services Corporation (Parts 1600--1699)
      XVII  National Commission on Libraries and Information 
                Science (Parts 1700--1799)
     XVIII  Harry S. Truman Scholarship Foundation (Parts 1800--
                1899)
       XXI  Commission on Fine Arts (Parts 2100--2199)
     XXIII  Arctic Research Commission (Part 2301)
      XXIV  James Madison Memorial Fellowship Foundation (Parts 
                2400--2499)
       XXV  Corporation for National and Community Service (Parts 
                2500--2599)

                          Title 46--Shipping

         I  Coast Guard, Department of Homeland Security (Parts 
                1--199)
        II  Maritime Administration, Department of Transportation 
                (Parts 200--399)
       III  Coast Guard (Great Lakes Pilotage), Department of 
                Homeland Security (Parts 400--499)
        IV  Federal Maritime Commission (Parts 500--599)

                      Title 47--Telecommunication

         I  Federal Communications Commission (Parts 0--199)
        II  Office of Science and Technology Policy and National 
                Security Council (Parts 200--299)

[[Page 356]]

       III  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                300--399)

           Title 48--Federal Acquisition Regulations System

         1  Federal Acquisition Regulation (Parts 1--99)
         2  Department of Defense (Parts 200--299)
         3  Department of Health and Human Services (Parts 300--
                399)
         4  Department of Agriculture (Parts 400--499)
         5  General Services Administration (Parts 500--599)
         6  Department of State (Parts 600--699)
         7  United States Agency for International Development 
                (Parts 700--799)
         8  Department of Veterans Affairs (Parts 800--899)
         9  Department of Energy (Parts 900--999)
        10  Department of the Treasury (Parts 1000--1099)
        12  Department of Transportation (Parts 1200--1299)
        13  Department of Commerce (Parts 1300--1399)
        14  Department of the Interior (Parts 1400--1499)
        15  Environmental Protection Agency (Parts 1500--1599)
        16  Office of Personnel Management, Federal Employees 
                Health Benefits Acquisition Regulation (Parts 
                1600--1699)
        17  Office of Personnel Management (Parts 1700--1799)
        18  National Aeronautics and Space Administration (Parts 
                1800--1899)
        19  Broadcasting Board of Governors (Parts 1900--1999)
        20  Nuclear Regulatory Commission (Parts 2000--2099)
        21  Office of Personnel Management, Federal Employees 
                Group Life Insurance Federal Acquisition 
                Regulation (Parts 2100--2199)
        23  Social Security Administration (Parts 2300--2399)
        24  Department of Housing and Urban Development (Parts 
                2400--2499)
        25  National Science Foundation (Parts 2500--2599)
        28  Department of Justice (Parts 2800--2899)
        29  Department of Labor (Parts 2900--2999)
        30  Department of Homeland Security, Homeland Security 
                Acquisition Regulation (HSAR) (Parts 3000--3099)
        34  Department of Education Acquisition Regulation (Parts 
                3400--3499)
        35  Panama Canal Commission (Parts 3500--3599)
        44  Federal Emergency Management Agency (Parts 4400--4499)
        51  Department of the Army Acquisition Regulations (Parts 
                5100--5199)
        52  Department of the Navy Acquisition Regulations (Parts 
                5200--5299)
        53  Department of the Air Force Federal Acquisition 
                Regulation Supplement (Parts 5300--5399)

[[Page 357]]

        54  Defense Logistics Agency, Department of Defense (Parts 
                5400--5499)
        57  African Development Foundation (Parts 5700--5799)
        61  General Services Administration Board of Contract 
                Appeals (Parts 6100--6199)
        63  Department of Transportation Board of Contract Appeals 
                (Parts 6300--6399)
        99  Cost Accounting Standards Board, Office of Federal 
                Procurement Policy, Office of Management and 
                Budget (Parts 9900--9999)

                       Title 49--Transportation

            Subtitle A--Office of the Secretary of Transportation 
                (Parts 1--99)
            Subtitle B--Other Regulations Relating to 
                Transportation
         I  Research and Special Programs Administration, 
                Department of Transportation (Parts 100--199)
        II  Federal Railroad Administration, Department of 
                Transportation (Parts 200--299)
       III  Federal Motor Carrier Safety Administration, 
                Department of Transportation (Parts 300--399)
        IV  Coast Guard, Department of Homeland Security (Parts 
                400--499)
         V  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 500--599)
        VI  Federal Transit Administration, Department of 
                Transportation (Parts 600--699)
       VII  National Railroad Passenger Corporation (AMTRAK) 
                (Parts 700--799)
      VIII  National Transportation Safety Board (Parts 800--999)
         X  Surface Transportation Board, Department of 
                Transportation (Parts 1000--1399)
        XI  Bureau of Transportation Statistics, Department of 
                Transportation (Parts 1400--1499)
       XII  Transportation Security Administration, Department of 
                Homeland Security (Parts 1500--1599)

                   Title 50--Wildlife and Fisheries

         I  United States Fish and Wildlife Service, Department of 
                the Interior (Parts 1--199)
        II  National Marine Fisheries Service, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 200--299)
       III  International Fishing and Related Activities (Parts 
                300--399)
        IV  Joint Regulations (United States Fish and Wildlife 
                Service, Department of the Interior and National 
                Marine Fisheries Service, National Oceanic and 
                Atmospheric Administration, Department of 
                Commerce); Endangered Species Committee 
                Regulations (Parts 400--499)

[[Page 358]]

         V  Marine Mammal Commission (Parts 500--599)
        VI  Fishery Conservation and Management, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 600--699)

                      CFR Index and Finding Aids

            Subject/Agency Index
            List of Agency Prepared Indexes
            Parallel Tables of Statutory Authorities and Rules
            List of CFR Titles, Chapters, Subchapters, and Parts
            Alphabetical List of Agencies Appearing in the CFR

[[Page 359]]





           Alphabetical List of Agencies Appearing in the CFR




                     (Revised as of January 1, 2004)

                                                  CFR Title, Subtitle or 
                     Agency                               Chapter

Administrative Committee of the Federal Register  1, I
Advanced Research Projects Agency                 32, I
Advisory Council on Historic Preservation         36, VIII
African Development Foundation                    22, XV
  Federal Acquisition Regulation                  48, 57
Agency for International Development, United      22, II
     States
  Federal Acquisition Regulation                  48, 7
Agricultural Marketing Service                    7, I, IX, X, XI
Agricultural Research Service                     7, V
Agriculture Department                            5, LXXIII
  Agricultural Marketing Service                  7, I, IX, X, XI
  Agricultural Research Service                   7, V
  Animal and Plant Health Inspection Service      7, III; 9, I
  Chief Financial Officer, Office of              7, XXX
  Commodity Credit Corporation                    7, XIV
  Cooperative State Research, Education, and      7, XXXIV
       Extension Service
  Economic Research Service                       7, XXXVII
  Energy, Office of                               7, XXIX
  Environmental Quality, Office of                7, XXXI
  Farm Service Agency                             7, VII, XVIII
  Federal Acquisition Regulation                  48, 4
  Federal Crop Insurance Corporation              7, IV
  Food and Nutrition Service                      7, II
  Food Safety and Inspection Service              9, III
  Foreign Agricultural Service                    7, XV
  Forest Service                                  36, II
  Grain Inspection, Packers and Stockyards        7, VIII; 9, II
       Administration
  Information Resources Management, Office of     7, XXVII
  Inspector General, Office of                    7, XXVI
  National Agricultural Library                   7, XLI
  National Agricultural Statistics Service        7, XXXVI
  Natural Resources Conservation Service          7, VI
  Operations, Office of                           7, XXVIII
  Procurement and Property Management, Office of  7, XXXII
  Rural Business-Cooperative Service              7, XVIII, XLII
  Rural Development Administration                7, XLII
  Rural Housing Service                           7, XVIII, XXXV
  Rural Telephone Bank                            7, XVI
  Rural Utilities Service                         7, XVII, XVIII, XLII
  Secretary of Agriculture, Office of             7, Subtitle A
  Transportation, Office of                       7, XXXIII
  World Agricultural Outlook Board                7, XXXVIII
Air Force Department                              32, VII
  Federal Acquisition Regulation Supplement       48, 53
Air Transportation Stabilization Board            14, VI
Alcohol and Tobacco Tax and Trade Bureau          27, I
Alcohol, Tobacco, Firearms, and Explosives,       27, II
     Bureau of
AMTRAK                                            49, VII
American Battle Monuments Commission              36, IV
American Indians, Office of the Special Trustee   25, VII
Animal and Plant Health Inspection Service        7, III; 9, I
Appalachian Regional Commission                   5, IX

[[Page 360]]

Architectural and Transportation Barriers         36, XI
     Compliance Board
Arctic Research Commission                        45, XXIII
Armed Forces Retirement Home                      5, XI
Army Department                                   32, V
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 51
Benefits Review Board                             20, VII
Bilingual Education and Minority Languages        34, V
     Affairs, Office of
Blind or Severely Disabled, Committee for         41, 51
     Purchase From People Who Are
Broadcasting Board of Governors                   22, V
  Federal Acquisition Regulation                  48, 19
Census Bureau                                     15, I
Centers for Medicare & Medicaid Services          42, IV
Central Intelligence Agency                       32, XIX
Chief Financial Officer, Office of                7, XXX
Child Support Enforcement, Office of              45, III
Children and Families, Administration for         45, II, III, IV, X
Civil Rights, Commission on                       45, VII
Civil Rights, Office for                          34, I
Coast Guard                                       33, I; 46, I; 49, IV
Coast Guard (Great Lakes Pilotage)                46, III
Commerce Department                               44, IV
  Census Bureau                                   15, I
  Economic Affairs, Under Secretary               37, V
  Economic Analysis, Bureau of                    15, VIII
  Economic Development Administration             13, III
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 13
  Fishery Conservation and Management             50, VI
  Foreign-Trade Zones Board                       15, IV
  Industry and Security, Bureau of                15, VII
  International Trade Administration              15, III; 19, III
  National Institute of Standards and Technology  15, II
  National Marine Fisheries Service               50, II, IV, VI
  National Oceanic and Atmospheric                15, IX; 50, II, III, IV, 
       Administration                             VI
  National Telecommunications and Information     15, XXIII; 47, III
       Administration
  National Weather Service                        15, IX
  Patent and Trademark Office, United States      37, I
  Productivity, Technology and Innovation,        37, IV
       Assistant Secretary for
  Secretary of Commerce, Office of                15, Subtitle A
  Technology, Under Secretary for                 37, V
  Technology Administration                       15, XI
  Technology Policy, Assistant Secretary for      37, IV
Commercial Space Transportation                   14, III
Commodity Credit Corporation                      7, XIV
Commodity Futures Trading Commission              5, XLI; 17, I
Community Planning and Development, Office of     24, V, VI
     Assistant Secretary for
Community Services, Office of                     45, X
Comptroller of the Currency                       12, I
Construction Industry Collective Bargaining       29, IX
     Commission
Consumer Product Safety Commission                5, LXXI; 16, II
Cooperative State Research, Education, and        7, XXXIV
     Extension Service
Copyright Office                                  37, II
Corporation for National and Community Service    45, XII, XXV
Cost Accounting Standards Board                   48, 99
Council on Environmental Quality                  40, V
Court Services and Offender Supervision Agency    28, VIII
     for the District of Columbia
Customs and Border Protection Bureau              19, I
Defense Contract Audit Agency                     32, I
Defense Department                                5, XXVI; 32, Subtitle A; 
                                                  40, VII

[[Page 361]]

  Advanced Research Projects Agency               32, I
  Air Force Department                            32, VII
  Army Department                                 32, V; 33, II; 36, III, 
                                                  48, 51
  Defense Intelligence Agency                     32, I
  Defense Logistics Agency                        32, I, XII; 48, 54
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 2
  National Imagery and Mapping Agency             32, I
  Navy Department                                 32, VI; 48, 52
  Secretary of Defense, Office of                 32, I
Defense Contract Audit Agency                     32, I
Defense Intelligence Agency                       32, I
Defense Logistics Agency                          32, XII; 48, 54
Defense Nuclear Facilities Safety Board           10, XVII
Delaware River Basin Commission                   18, III
District of Columbia, Court Services and          28, VIII
     Offender Supervision Agency for the
Drug Enforcement Administration                   21, II
East-West Foreign Trade Board                     15, XIII
Economic Affairs, Under Secretary                 37, V
Economic Analysis, Bureau of                      15, VIII
Economic Development Administration               13, III
Economic Research Service                         7, XXXVII
Education, Department of                          5, LIII
  Bilingual Education and Minority Languages      34, V
       Affairs, Office of
  Civil Rights, Office for                        34, I
  Educational Research and Improvement, Office    34, VII
       of
  Elementary and Secondary Education, Office of   34, II
  Federal Acquisition Regulation                  48, 34
  Postsecondary Education, Office of              34, VI
  Secretary of Education, Office of               34, Subtitle A
  Special Education and Rehabilitative Services,  34, III
       Office of
  Vocational and Adult Education, Office of       34, IV
Educational Research and Improvement, Office of   34, VII
Elementary and Secondary Education, Office of     34, II
Emergency Oil and Gas Guaranteed Loan Board       13, V
Emergency Steel Guarantee Loan Board              13, IV
Employee Benefits Security Administration         29, XXV
Employees' Compensation Appeals Board             20, IV
Employees Loyalty Board                           5, V
Employment and Training Administration            20, V
Employment Standards Administration               20, VI
Endangered Species Committee                      50, IV
Energy, Department of                             5, XXIII; 10, II, III, X
  Federal Acquisition Regulation                  48, 9
  Federal Energy Regulatory Commission            5, XXIV; 18, I
  Property Management Regulations                 41, 109
Energy, Office of                                 7, XXIX
Engineers, Corps of                               33, II; 36, III
Engraving and Printing, Bureau of                 31, VI
Environmental Protection Agency                   5, LIV; 40, I, IV, VII
  Federal Acquisition Regulation                  48, 15
  Property Management Regulations                 41, 115
Environmental Quality, Office of                  7, XXXI
Equal Employment Opportunity Commission           5, LXII; 29, XIV
Equal Opportunity, Office of Assistant Secretary  24, I
     for
Executive Office of the President                 3, I
  Administration, Office of                       5, XV
  Environmental Quality, Council on               40, V
  Management and Budget, Office of                5, III, LXXVII; 14, VI; 
                                                  48, 99
  National Drug Control Policy, Office of         21, III
  National Security Council                       32, XXI; 47, 2
  Presidential Documents                          3
  Science and Technology Policy, Office of        32, XXIV; 47, II

[[Page 362]]

  Trade Representative, Office of the United      15, XX
       States
Export-Import Bank of the United States           5, LII; 12, IV
Family Assistance, Office of                      45, II
Farm Credit Administration                        5, XXXI; 12, VI
Farm Credit System Insurance Corporation          5, XXX; 12, XIV
Farm Service Agency                               7, VII, XVIII
Federal Acquisition Regulation                    48, 1
Federal Aviation Administration                   14, I
  Commercial Space Transportation                 14, III
Federal Claims Collection Standards               31, IX
Federal Communications Commission                 5, XXIX; 47, I
Federal Contract Compliance Programs, Office of   41, 60
Federal Crop Insurance Corporation                7, IV
Federal Deposit Insurance Corporation             5, XXII; 12, III
Federal Election Commission                       11, I
Federal Emergency Management Agency               44, I
  Federal Acquisition Regulation                  48, 44
Federal Employees Group Life Insurance Federal    48, 21
     Acquisition Regulation
Federal Employees Health Benefits Acquisition     48, 16
     Regulation
Federal Energy Regulatory Commission              5, XXIV; 18, I
Federal Financial Institutions Examination        12, XI
     Council
Federal Financing Bank                            12, VIII
Federal Highway Administration                    23, I, II
Federal Home Loan Mortgage Corporation            1, IV
Federal Housing Enterprise Oversight Office       12, XVII
Federal Housing Finance Board                     12, IX
Federal Labor Relations Authority, and General    5, XIV; 22, XIV
     Counsel of the Federal Labor Relations 
     Authority
Federal Law Enforcement Training Center           31, VII
Federal Management Regulation                     41, 102
Federal Maritime Commission                       46, IV
Federal Mediation and Conciliation Service        29, XII
Federal Mine Safety and Health Review Commission  5, LXXIV; 29, XXVII
Federal Motor Carrier Safety Administration       49, III
Federal Prison Industries, Inc.                   28, III
Federal Procurement Policy Office                 48, 99
Federal Property Management Regulations           41, 101
Federal Railroad Administration                   49, II
Federal Register, Administrative Committee of     1, I
Federal Register, Office of                       1, II
Federal Reserve System                            12, II
  Board of Governors                              5, LVIII
Federal Retirement Thrift Investment Board        5, VI, LXXVI
Federal Service Impasses Panel                    5, XIV
Federal Trade Commission                          5, XLVII; 16, I
Federal Transit Administration                    49, VI
Federal Travel Regulation System                  41, Subtitle F
Fine Arts, Commission on                          45, XXI
Fiscal Service                                    31, II
Fish and Wildlife Service, United States          50, I, IV
Fishery Conservation and Management               50, VI
Food and Drug Administration                      21, I
Food and Nutrition Service                        7, II
Food Safety and Inspection Service                9, III
Foreign Agricultural Service                      7, XV
Foreign Assets Control, Office of                 31, V
Foreign Claims Settlement Commission of the       45, V
     United States
Foreign Service Grievance Board                   22, IX
Foreign Service Impasse Disputes Panel            22, XIV
Foreign Service Labor Relations Board             22, XIV
Foreign-Trade Zones Board                         15, IV
Forest Service                                    36, II
General Accounting Office                         4, I
General Services Administration                   5, LVII; 41, 105
  Contract Appeals, Board of                      48, 61
  Federal Acquisition Regulation                  48, 5

[[Page 363]]

  Federal Management Regulation                   41, 102
  Federal Property Management Regulations         41, 101
  Federal Travel Regulation System                41, Subtitle F
  General                                         41, 300
  Payment From a Non-Federal Source for Travel    41, 304
       Expenses
  Payment of Expenses Connected With the Death    41, 303
       of Certain Employees
  Relocation Allowances                           41, 302
  Temporary Duty (TDY) Travel Allowances          41, 301
Geological Survey                                 30, IV
Government Ethics, Office of                      5, XVI
Government National Mortgage Association          24, III
Grain Inspection, Packers and Stockyards          7, VIII; 9, II
     Administration
Harry S. Truman Scholarship Foundation            45, XVIII
Health and Human Services, Department of          5, XLV; 45, Subtitle A
  Centers for Medicare & Medicaid Services        42, IV
  Child Support Enforcement, Office of            45, III
  Children and Families, Administration for       45, II, III, IV, X
  Community Services, Office of                   45, X
  Family Assistance, Office of                    45, II
  Federal Acquisition Regulation                  48, 3
  Food and Drug Administration                    21, I
  Human Development Services, Office of           45, XIII
  Indian Health Service                           25, V; 42, I
  Inspector General (Health Care), Office of      42, V
  Public Health Service                           42, I
  Refugee Resettlement, Office of                 45, IV
Homeland Security, Department of                  6, I
  Coast Guard                                     33, I; 46, I; 49, IV
  Coast Guard (Great Lakes Pilotage)              46, III
  Customs and Border Protection Bureau            19, I
  Federal Emergency Management Agency             44, I
  Immigration and Customs Enforcement Bureau      19, IV
  Immigration and Naturalization                  8, I
  Transportation Security Administration          49, XII
Housing and Urban Development, Department of      5, LXV; 24, Subtitle B
  Community Planning and Development, Office of   24, V, VI
       Assistant Secretary for
  Equal Opportunity, Office of Assistant          24, I
       Secretary for
  Federal Acquisition Regulation                  48, 24
  Federal Housing Enterprise Oversight, Office    12, XVII
       of
  Government National Mortgage Association        24, III
  Housing--Federal Housing Commissioner, Office   24, II, VIII, X, XX
       of Assistant Secretary for
  Housing, Office of, and Multifamily Housing     24, IV
       Assistance Restructuring, Office of
  Inspector General, Office of                    24, XII
  Public and Indian Housing, Office of Assistant  24, IX
       Secretary for
  Secretary, Office of                            24, Subtitle A, VII
Housing--Federal Housing Commissioner, Office of  24, II, VIII, X, XX
     Assistant Secretary for
Housing, Office of, and Multifamily Housing       24, IV
     Assistance Restructuring, Office of
Human Development Services, Office of             45, XIII
Immigration and Customs Enforcement Bureau        19, IV
Immigration and Naturalization                    8, I
Immigration Review, Executive Office for          8, V
Independent Counsel, Office of                    28, VII
Indian Affairs, Bureau of                         25, I, V
Indian Affairs, Office of the Assistant           25, VI
     Secretary
Indian Arts and Crafts Board                      25, II
Indian Health Service                             25, V; 42, I
Industry and Security, Bureau of                  15, VII
Information Resources Management, Office of       7, XXVII
Information Security Oversight Office, National   32, XX
     Archives and Records Administration
Inspector General

[[Page 364]]

  Agriculture Department                          7, XXVI
  Health and Human Services Department            42, V
  Housing and Urban Development Department        24, XII
Institute of Peace, United States                 22, XVII
Inter-American Foundation                         5, LXIII; 22, X
Interior Department
  American Indians, Office of the Special         25, VII
       Trustee
  Endangered Species Committee                    50, IV
  Federal Acquisition Regulation                  48, 14
  Federal Property Management Regulations System  41, 114
  Fish and Wildlife Service, United States        50, I, IV
  Geological Survey                               30, IV
  Indian Affairs, Bureau of                       25, I, V
  Indian Affairs, Office of the Assistant         25, VI
       Secretary
  Indian Arts and Crafts Board                    25, II
  Land Management, Bureau of                      43, II
  Minerals Management Service                     30, II
  National Indian Gaming Commission               25, III
  National Park Service                           36, I
  Reclamation, Bureau of                          43, I
  Secretary of the Interior, Office of            43, Subtitle A
  Surface Mining and Reclamation Appeals, Board   30, III
       of
  Surface Mining Reclamation and Enforcement,     30, VII
       Office of
Internal Revenue Service                          26, I
International Boundary and Water Commission,      22, XI
     United States and Mexico, United States 
     Section
International Development, United States Agency   22, II
     for
  Federal Acquisition Regulation                  48, 7
International Development Cooperation Agency,     22, XII
     United States
International Fishing and Related Activities      50, III
International Investment, Office of               31, VIII
International Joint Commission, United States     22, IV
     and Canada
International Organizations Employees Loyalty     5, V
     Board
International Trade Administration                15, III; 19, III
International Trade Commission, United States     19, II
Interstate Commerce Commission                    5, XL
James Madison Memorial Fellowship Foundation      45, XXIV
Japan-United States Friendship Commission         22, XVI
Joint Board for the Enrollment of Actuaries       20, VIII
Justice Department                                5, XXVIII; 28, I, XI; 40, 
                                                  IV
  Alcohol, Tobacco, Firearms, and Explosives,     27, II
       Bureau of
  Drug Enforcement Administration                 21, II
  Federal Acquisition Regulation                  48, 28
  Federal Claims Collection Standards             31, IX
  Federal Prison Industries, Inc.                 28, III
  Foreign Claims Settlement Commission of the     45, V
       United States
  Immigration Review, Executive Office for        8, V
  Offices of Independent Counsel                  28, VI
  Prisons, Bureau of                              28, V
  Property Management Regulations                 41, 128
Labor Department                                  5, XLII
  Benefits Review Board                           20, VII
  Employee Benefits Security Administration       29, XXV
  Employees' Compensation Appeals Board           20, IV
  Employment and Training Administration          20, V
  Employment Standards Administration             20, VI
  Federal Acquisition Regulation                  48, 29
  Federal Contract Compliance Programs, Office    41, 60
       of
  Federal Procurement Regulations System          41, 50
  Labor-Management Standards, Office of           29, II, IV
  Mine Safety and Health Administration           30, I
  Occupational Safety and Health Administration   29, XVII
  Public Contracts                                41, 50
  Secretary of Labor, Office of                   29, Subtitle A

[[Page 365]]

  Veterans' Employment and Training Service,      41, 61; 20, IX
       Office of the Assistant Secretary for
  Wage and Hour Division                          29, V
  Workers' Compensation Programs, Office of       20, I
Labor-Management Standards, Office of             29, II, IV
Land Management, Bureau of                        43, II
Legal Services Corporation                        45, XVI
Library of Congress                               36, VII
  Copyright Office                                37, II
Local Television Loan Guarantee Board             7, XX
Management and Budget, Office of                  5, III, LXXVII; 14, VI; 
                                                  48, 99
Marine Mammal Commission                          50, V
Maritime Administration                           46, II
Merit Systems Protection Board                    5, II
Micronesian Status Negotiations, Office for       32, XXVII
Mine Safety and Health Administration             30, I
Minerals Management Service                       30, II
Minority Business Development Agency              15, XIV
Miscellaneous Agencies                            1, IV
Monetary Offices                                  31, I
Morris K. Udall Scholarship and Excellence in     36, XVI
     National Environmental Policy Foundation
National Aeronautics and Space Administration     5, LIX; 14, V
  Federal Acquisition Regulation                  48, 18
National Agricultural Library                     7, XLI
National Agricultural Statistics Service          7, XXXVI
National and Community Service, Corporation for   45, XII, XXV
National Archives and Records Administration      5, LXVI; 36, XII
  Information Security Oversight Office           32, XX
National Bureau of Standards                      15, II
National Capital Planning Commission              1, IV
National Commission for Employment Policy         1, IV
National Commission on Libraries and Information  45, XVII
     Science
National Council on Disability                    34, XII
National Counterintelligence Center               32, XVIII
National Credit Union Administration              12, VII
National Crime Prevention and Privacy Compact     28, IX
     Council
National Drug Control Policy, Office of           21, III
National Foundation on the Arts and the           45, XI
     Humanities
National Highway Traffic Safety Administration    23, II, III; 49, V
National Imagery and Mapping Agency               32, I
National Indian Gaming Commission                 25, III
National Institute for Literacy                   34, XI
National Institute of Standards and Technology    15, II
National Labor Relations Board                    5, LXI; 29, I
National Marine Fisheries Service                 50, II, IV, VI
National Mediation Board                          29, X
National Oceanic and Atmospheric Administration   15, IX; 50, II, III, IV, 
                                                  VI
National Park Service                             36, I
National Railroad Adjustment Board                29, III
National Railroad Passenger Corporation (AMTRAK)  49, VII
National Science Foundation                       5, XLIII; 45, VI
  Federal Acquisition Regulation                  48, 25
National Security Council                         32, XXI
National Security Council and Office of Science   47, II
     and Technology Policy
National Telecommunications and Information       15, XXIII; 47, III
     Administration
National Transportation Safety Board              49, VIII
National Weather Service                          15, IX
Natural Resources Conservation Service            7, VI
Navajo and Hopi Indian Relocation, Office of      25, IV
Navy Department                                   32, VI
  Federal Acquisition Regulation                  48, 52
Neighborhood Reinvestment Corporation             24, XXV
Northeast Interstate Low-Level Radioactive Waste  10, XVIII
   Commission
[[Page 366]]

Nuclear Regulatory Commission                     5, XLVIII; 10, I
  Federal Acquisition Regulation                  48, 20
Occupational Safety and Health Administration     29, XVII
Occupational Safety and Health Review Commission  29, XX
Offices of Independent Counsel                    28, VI
Oklahoma City National Memorial Trust             36, XV
Operations Office                                 7, XXVIII
Overseas Private Investment Corporation           5, XXXIII; 22, VII
Panama Canal Commission                           48, 35
Panama Canal Regulations                          35, I
Patent and Trademark Office, United States        37, I
Payment From a Non-Federal Source for Travel      41, 304
     Expenses
Payment of Expenses Connected With the Death of   41, 303
     Certain Employees
Peace Corps                                       22, III
Pennsylvania Avenue Development Corporation       36, IX
Pension Benefit Guaranty Corporation              29, XL
Personnel Management, Office of                   5, I, XXXV; 45, VIII
  Federal Acquisition Regulation                  48, 17
  Federal Employees Group Life Insurance Federal  48, 21
       Acquisition Regulation
  Federal Employees Health Benefits Acquisition   48, 16
       Regulation
Postal Rate Commission                            5, XLVI; 39, III
Postal Service, United States                     5, LX; 39, I
Postsecondary Education, Office of                34, VI
President's Commission on White House             1, IV
     Fellowships
Presidential Documents                            3
Presidio Trust                                    36, X
Prisons, Bureau of                                28, V
Procurement and Property Management, Office of    7, XXXII
Productivity, Technology and Innovation,          37, IV
     Assistant Secretary
Public Contracts, Department of Labor             41, 50
Public and Indian Housing, Office of Assistant    24, IX
     Secretary for
Public Health Service                             42, I
Railroad Retirement Board                         20, II
Reclamation, Bureau of                            43, I
Refugee Resettlement, Office of                   45, IV
Regional Action Planning Commissions              13, V
Relocation Allowances                             41, 302
Research and Special Programs Administration      49, I
Rural Business-Cooperative Service                7, XVIII, XLII
Rural Development Administration                  7, XLII
Rural Housing Service                             7, XVIII, XXXV
Rural Telephone Bank                              7, XVI
Rural Utilities Service                           7, XVII, XVIII, XLII
Saint Lawrence Seaway Development Corporation     33, IV
Science and Technology Policy, Office of          32, XXIV
Science and Technology Policy, Office of, and     47, II
     National Security Council
Secret Service                                    31, IV
Securities and Exchange Commission                17, II
Selective Service System                          32, XVI
Small Business Administration                     13, I
Smithsonian Institution                           36, V
Social Security Administration                    20, III; 48, 23
Soldiers' and Airmen's Home, United States        5, XI
Special Counsel, Office of                        5, VIII
Special Education and Rehabilitative Services,    34, III
     Office of
State Department                                  22, I; 28, XI
  Federal Acquisition Regulation                  48, 6
Surface Mining and Reclamation Appeals, Board of  30, III
Surface Mining Reclamation and Enforcement,       30, VII
     Office of
Surface Transportation Board                      49, X
Susquehanna River Basin Commission                18, VIII
Technology Administration                         15, XI
Technology Policy, Assistant Secretary for        37, IV

[[Page 367]]

Technology, Under Secretary for                   37, V
Tennessee Valley Authority                        5, LXIX; 18, XIII
Thrift Supervision Office, Department of the      12, V
     Treasury
Trade Representative, United States, Office of    15, XX
Transportation, Department of                     5, L
  Commercial Space Transportation                 14, III
  Contract Appeals, Board of                      48, 63
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 12
  Federal Aviation Administration                 14, I
  Federal Highway Administration                  23, I, II
  Federal Motor Carrier Safety Administration     49, III
  Federal Railroad Administration                 49, II
  Federal Transit Administration                  49, VI
  Maritime Administration                         46, II
  National Highway Traffic Safety Administration  23, II, III; 49, V
  Research and Special Programs Administration    49, I
  Saint Lawrence Seaway Development Corporation   33, IV
  Secretary of Transportation, Office of          14, II; 49, Subtitle A
  Surface Transportation Board                    49, X
  Transportation Statistics Bureau                49, XI
Transportation, Office of                         7, XXXIII
Transportation Security Administration            49, XII
Transportation Statistics Bureau                  49, XI
Travel Allowances, Temporary Duty (TDY)           41, 301
Treasury Department                               5, XXI; 12, XV; 17, IV; 
                                                  31, IX
  Alcohol and Tobacco Tax and Trade Bureau        27, I
  Community Development Financial Institutions    12, XVIII
       Fund
  Comptroller of the Currency                     12, I
  Customs and Border Protection Bureau            19, I
  Engraving and Printing, Bureau of               31, VI
  Federal Acquisition Regulation                  48, 10
  Federal Law Enforcement Training Center         31, VII
  Fiscal Service                                  31, II
  Foreign Assets Control, Office of               31, V
  Internal Revenue Service                        26, I
  International Investment, Office of             31, VIII
  Monetary Offices                                31, I
  Secret Service                                  31, IV
  Secretary of the Treasury, Office of            31, Subtitle A
  Thrift Supervision, Office of                   12, V
Truman, Harry S. Scholarship Foundation           45, XVIII
United States and Canada, International Joint     22, IV
     Commission
United States and Mexico, International Boundary  22, XI
     and Water Commission, United States Section
Utah Reclamation Mitigation and Conservation      43, III
     Commission
Veterans Affairs Department                       38, I
  Federal Acquisition Regulation                  48, 8
Veterans' Employment and Training Service,        41, 61; 20, IX
     Office of the Assistant Secretary for
Vice President of the United States, Office of    32, XXVIII
Vocational and Adult Education, Office of         34, IV
Wage and Hour Division                            29, V
Water Resources Council                           18, VI
Workers' Compensation Programs, Office of         20, I
World Agricultural Outlook Board                  7, XXXVIII

[[Page 369]]



List of CFR Sections Affected



All changes in this volume of the Code of Federal Regulations which were 
made by documents published in the Federal Register since January 1, 
2001, are enumerated in the following list. Entries indicate the nature 
of the changes effected. Pages numbers refer to Federal Register pages. 
The user should consult the entries for chapters and parts as well as 
sections for revisions.
For the period before January 1, 2001, see the ``List of CFR Sections 
Affected, 1949-1963, 1964-1972, 1973-1985, and 1986-2000'' published in 
11 separate volumes.

                                  2001

7 CFR
                                                                   66 FR
                                                                    Page
Chapter XVIII
1901 Authority citation revised7568...............................
1901.1--1901.5 (Subpart A) Removed7568............................
1902 Authority citation revised1569...............................
1902.15 (c) amended1569...........................................
    Regulation at 66 FR 1569 eff. date delayed8886................
1910.1 (f) added; interim1572.....................................
1910.4 (b) amended; (c) through (k) redesignated as (d) through 
        (l); new (c) added; interim1572...........................

                                  2002

7 CFR
                                                                   67 FR
                                                                    Page
Chapter XVIII
  1924.5 (g)(4) revised; (i) introductory text amended; eff. 1-23-
        0378326.........................................................
1924.6 Introductory text and (c) amended; eff. 1-23-0378326.......
1924.9 (a) amended; eff. 1-23-0378327.............................
  1924.1--1924.50 (Subpart A) Exhibits B and J amended; eff. 1-23-
        0378327.........................................................
1924.253 (a)(3) and (b)(3) amended; eff. 1-23-0378327.............
1924.266 (a)(3) introductory text, (3)(i) introductory text, (B), 
        (ii) and (4)(i)(A) amended; eff. 1-23-0378327.............
1924.273 (a) amended; eff. 1-23-0378327...........................
1925.1 Amended; eff. 1-23-0378327.................................
1925.4 (a) amended; eff. 1-23-0378327.............................
1927.52 Amended; eff. 1-23-0378327................................
1927.59 (b) amended; eff. 1-23-0378327............................
1930.101--1930.150 (Subpart C) Exhibits B and E amended; eff. 1-
        23-0378327................................................

                                  2003

7 CFR
                                                                   68 FR
                                                                    Page
Chapter XVIII
Chapter XVIII Policy statement14889...............................
1901 Authority citation revised69952..............................
1901.204 (a)(1), (2), (4) and (10) removed; (a)(3), (5) through 
        (9) and (11) through (28) redesignated as (a)(1), (2) 
        through (6) and (7) through (24); eff. 1-15-0469952.......
1902 Authority citation revised61331..............................
1902.8 Removed61331...............................................
1902.101--1902.150 (Subpart C) Removed61331.......................
1910.4 (b) heading and (2) revised; (b) amended7696...............
    (i) correctly redesignated as (j); CFR correction61734........
    (i) redesignated as (j)62223..................................
1924.54 Amended62223..............................................

[[Page 370]]

1924.55 Heading revised; (e) amended7696..........................
1924.74 (b)(1) amended7696........................................
    (a)(2) amended62223...........................................
1930.101--1930.150 (Subpart C) Exhibit H amended61331.............


                                  [all]