[Federal Register Volume 62, Number 88 (Wednesday, May 7, 1997)]
[Rules and Regulations]
[Pages 25062-25071]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-11817]



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Part III





Department of Agriculture





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Rural Housing Service



_______________________________________________________________________



Rural Business-Cooperative Service



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Rural Utilities Service



_______________________________________________________________________



Farm Service Agency



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7 CFR Parts 1930, et al.



Rural Rental Housing (RRH) Assistance and Processing Requests for 
Section 515 Rural Rental Housing (RRH) Loans; Interim and Final Rules 
and Notice of Funding Availability (NOFA) for the Section 515 Rural 
Rental Housing Program; Notice

  Federal Register / Vol. 62, No. 88 / Wednesday, May 7, 1997 / Rules 
and Regulations  

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DEPARTMENT OF AGRICULTURE

Rural Housing Service
Rural Business-Cooperative Service
Rural Utilities Service
Farm Service Agency

7 CFR Parts 1930, 1944, 1951, and 1965

RIN 0575-AC15


Rural Rental Housing (RRH) Assistance

AGENCIES: Rural Housing Service, Rural Business-Cooperative Service, 
Rural Utilities Service, and Farm Service Agency, USDA.

ACTION: Interim final rule with request for comments.

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SUMMARY: The Rural Housing Service (RHS), formerly Rural Housing and 
Community Development Service (RHCDS), a successor Agency to the 
Farmers Home Administration (FmHA), amends its regulations for the 
Rural Rental Housing (RRH) program to implement legislative reforms 
mandated by the Agriculture, Rural Development, Food and Drug 
Administration, and Related Agencies Appropriations Act, 1997, Public 
Law 104-180, enacted August 6, 1996 (hereinafter referred to as the 
Act.) The following revisions are included in this rule: Prioritization 
of assistance; assurances that the amount of assistance provided is no 
more than is necessary; assurance that project transfers are in the 
best interest of the tenants and the government; elimination of the 
occupancy surcharge; changes to the equity loan program; and 
implementation of penalties for equity skimming by project owners and 
managers. The intended effect of these reforms is to improve the 
effectiveness of the Section 515 Rural Rental Housing Program.

DATES: The effective date of this interim final rule is May 7, 1997. 
Written comments must be received on or before July 7, 1997.

ADDRESSES: Written comments may be submitted, in duplicate, to the 
Director, Support Services Division, U.S. Department of Agriculture, 
Stop 0743, 1400 Independence Avenue SW, Washington, D.C. 20250. 
Comments may be submitted via the Internet by addressing them to 
``[email protected]'' and must contain the word ``reforms'' in the 
subject. All written comments will be available for public inspection 
at the above address during normal working hours.

FOR FURTHER INFORMATION CONTACT: Linda Armour or Carl Wagner, Senior 
Loan Specialists, Multi-Family Housing Processing Division, Rural 
Housing Service, U.S. Department of Agriculture, Room 5349--South 
Building, Stop 0781, Washington, D.C. 20250, telephone (202) 720-1608.

SUPPLEMENTARY INFORMATION:

Classification

    This rule has been determined to be significant for purposes of 
Executive Order 12886 and therefore has been reviewed by the Office of 
Management and Budget.

Paperwork Reduction Act

    The information collection requirements contained in this 
regulation have been previously approved by the Office of Management 
and Budget (OMB) under the provisions of 44 U.S.C. chapter 35 and have 
been assigned OMB control number 0575-0047 in accordance with the 
Paperwork Reduction Act of 1995. This rule does not impose any new 
information collection requirements.
    Under the Paperwork Reduction Act of 1995, no persons are required 
to respond to a collection of information unless it displays a valid 
OMB control number. The valid OMB control number assigned to the 
collection of information in these final regulations is displayed at 
the end of the affected section of the regulations.

Civil Justice Reform

    This rule has been reviewed under Executive Order 12988, Civil 
Justice Reform. In accordance with this rule: (1) All state and local 
laws and regulations that are in conflict with this rule will be 
preempted; (2) no retroactive effect will be given to this rule; and 
(3) administrative proceedings in accordance with 7 CFR part 11 must be 
exhausted before bringing suit.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public 
Law 104-4, establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local, and tribal 
governments and the private sector. Under section 202 of the UMRA, RHS 
generally must prepare a written statement, including a cost-benefit 
analysis, for proposed and final rules with ``Federal mandates'' that 
may result in expenditures to State, local, or tribal governments, in 
the aggregate, or to the private sector, of $100 million or more in any 
one year. When such a statement is needed for a rule, section 205 of 
the UMRA generally requires RHS to identify and consider a reasonable 
number of regulatory alternatives and adopt the least costly, more 
cost-effective or least burdensome alternative that achieves the 
objectives of the rule.
    This rule contains no Federal mandates (under the regulatory 
provisions of title II of the UMRA) for State, local, and tribal 
governments or the private sector. Therefore, this rule is not subject 
to the requirements of sections 202 and 205 of the UMRA.

Discussion of Use of Interim Final Rule

    It is the policy of this Department that rules relating to public 
property loans, grants, benefits or contracts shall be published for 
comment notwithstanding the exemption in 5 U.S.C. 553 with respect to 
such rules. These amendments, however, are not published for proposed 
rulemaking since the purpose of the change is to comply with mandatory 
statutory provisions and any delay would be contrary to the public 
interest. The Act requires six reforms to the MFH program in direct 
response to reports issued by the General Accounting Office (GAO), 
Surveys and Investigations Staff of the House Appropriations Committee, 
and USDA Office of the Inspector General (OIG). These reports 
highlighted program deficiencies and the potential for fraud and waste. 
Congress mandated immediate action on all reforms, and specifically 
directed the Agency to implement one reform within 60 days through 
negotiated rulemaking. The Agency was not able to accomplish the 60-day 
deadline because the negotiated rulemaking process takes an estimated 
18 months; however, this provides further documentation of Congress' 
intent that these regulations be implemented without delay. In 
addition, the effect of including these reforms in the Agency's 
appropriation bill precludes the Agency from obligating any loan funds 
for new construction until the reforms are enacted, with the result 
being that many very-low and low income families are being denied 
access to decent, safe and sanitary housing. In addition, our other 
partners in the development of affordable housing such as state housing 
financing agencies administering low-income housing tax credits, and 
other loan and grant programs are adversely affected by the Agency's 
inability to make loan commitments on jointly financed proposals. And 
finally, there are provisions of the Act that affect the management of 
our existing loan portfolio. Their immediate implementation will serve 
to reduce unnecessary outlays of federal

[[Page 25063]]

resources, reduce paperwork burden, improve program performance, and 
impose stricter penalties on program abusers.
    Due to its exigency, this rule also constitutes an emergency for 
purposes of section 534(c) of the Housing Act of 1949 and thus is an 
exception to the proposed rulemaking requirements in section 534(a) of 
the Housing Act of 1949. Comments are being solicited on this interim 
final rule and will be considered in the development of the final rule.

Programs Affected

    The affected programs are listed in the Catalog of Federal Domestic 
Assistance under Numbers 10.405, Farm Labor Housing Loans and Grants, 
10.415, Rural Rental Housing Loans and 10.427, Rural Rental Assistance 
Payments.

Intergovernmental Consultation

    This program is subject to Executive Order 12372 which requires 
intergovernmental consultation with State and local officials. RHS has 
conducted intergovernmental consultation in the manner delineated in RD 
Instruction 1940-J.

Environmental Impact Statement

    This document has been reviewed in accordance with 7 CFR part 1940, 
subpart G, ``Environmental Program.'' It is the determination of RHS 
that this action does not constitute a major Federal action 
significantly affecting the quality of the human environment and in 
accordance with the National Environmental Policy Act of 1969, Public 
Law 91-190, an Environmental Impact Statement is not required.

Civil Rights Impact Analysis

    This document has been reviewed in accordance with RD Instruction 
2006-P, ``Civil Rights Impact Analysis.'' It is the determination of 
RHS that this document complies with the requirements of this 
Instruction.

Background and Information

    The Act included reforms in six areas of the multi-family housing 
program. Four of the six reforms were directive and could be 
implemented as enacted without the need for public comment. For 
example, the Act eliminated occupancy surcharge. Two of the reforms, 
however, provided for substantive changes in the manner in which MFH 
loan requests are processed and gave the Secretary administrative 
discretion in their implementation. The Act required that one of these 
reforms, determining the amount of assistance necessary to develop the 
proposed rental housing, be implemented within 60 days through 
negotiated rulemaking as a means of assuring that the public was both 
informed and consulted regarding the Agency's intentions and 
requirements that would impact them as potential users of the program. 
Unfortunately, such process takes an estimated 18 months and could not 
be accomplished within the confines of the law (that is, within 60 days 
of enactment). In order to meet the spirit of negotiated rulemaking, 
the Agency sought extensive public input through several informal 
meetings with developers, major housing groups, and Agency personnel so 
that the Agency would gain a full measure of public input before 
developing the regulations. The Act further required the Agency to 
follow 5 U.S.C. 557 if negotiated rulemaking could not be accomplished. 
Therefore, in accordance with 5 U.S.C. 557, the Agency is publishing 
the rule for notice and comment.
    Following is a discussion of each of the six reforms included in 
this rule:
    (1) Limitation on Project Transfers. If a borrower fails to perform 
the duties contained in their RHS security instruments, the Agency can 
authorize the transfer of the property to an operator who is able to 
protect the housing and the health and safety of the tenants. Borrowers 
demonstrating a record of substantial noncompliance on one or more 
projects may be ineligible for financial assistance from the 
government. Borrowers must be in compliance and operating successfully 
on loans or be successfully operating on a workout plan in order to 
qualify for federal assistance. Furthermore, the government must 
evaluate the proposed costs and impacts associated with rehabilitation 
efforts. The government is seeking to ensure that rehabilitation costs 
are reasonable, that the efforts will minimize tenant displacement, and 
that the community will benefit by achieving decent, safe, sanitary, 
modest, and affordable housing for very low-, low-, and moderate income 
rural residents. Since 1994, RHS has taken an aggressive stance toward 
servicing delinquent and problem borrowers. Delinquencies of 180 days 
or more have dropped 28%, while the overall program delinquency rate 
for the past two years has stayed at or near 2.6%, a very low rate for 
this type of portfolio. The reform amendments formalize the Agency's 
role in servicing these accounts by stipulating that the Agency will 
determine if a project transfer is in the best interest of the tenants 
and the government. 7 CFR part 1965, subpart B, ``Security Servicing 
for Multiple Housing Loans,'' is revised to implement this provision.
    (2) Eliminating the Occupancy Surcharge. Occupancy surcharges were 
enacted as a mechanism to build an equity reserve fund to defray some 
of the costs of guaranteed equity takeout loans. The surcharge program 
adds $2 to the monthly rental rate for each rental unit each year, 
thereby increasing the amount of rental assistance (RA) RHS must 
provide tenants who receive RA, and reducing the amount of available 
RA. The reform amendments eliminated the requirement to collect 
occupancy surcharges. The elimination of the occupancy surcharge will 
reduce the amount of RA provided to tenants by nearly $600,000 per 
month. The Agency is amending 7 CFR part 1951, subpart K, 
``Predetermined Amortization Schedule System (PASS) Account 
Servicing;'' part 1930, subpart C, ``Management and Supervision of 
Multiple Family Housing Borrowers and Grant Recipients;'' and part 
1965, subpart B, ``Security Servicing for Multiple Housing Loans'' to 
implement these changes. Rural Development Administrative Notice (AN) 
3301 (1930-C) was issued on December 18, 1996, to provide guidance to 
Agency field offices on how to implement the process to repeal the 
occupancy surcharge. At this time, no determination has been made 
regarding occupancy surcharges previously collected by the Agency.
    (3) Revising the Equity Loan Program. The equity loan program was 
enacted as an incentive for owners not to prepay their RHS loans and to 
keep their projects in use as low-and very low-income housing for the 
full terms of their loans. This rule includes revisions to 7 CFR part 
1965, subpart E, ``Prepayment and Displacement Prevention of Multi-
Family Housing Loans,'' to implement statutory provisions that allow 
any owner with a pre-1989 loan to apply for an equity loan. The primary 
focus of this reform is to ensure that any developer who has 
restrictive-use provisions currently on its property would not be 
eligible to receive any incentives, including equity loans, until their 
existing restrictive-use provisions have expired. An additional change 
to the statute, to improve program consistency, allows owners with 
post-1979 but pre-1989 loans to obtain equity loans once their 
restrictive use period expires. Prior to this statutory change, the 
program allowed only owners with pre-1979 loans to recover some of 
their equity through low-interest government loans. A significant 
number of owners will now become eligible for equity loans with this 
change once their restrictive use

[[Page 25064]]

period expires, but given current and projected funding levels, RHS's 
ability to finance these loans is severely limited.
    The Act also contained language which appeared to make farm labor 
housing borrowers eligible for equity loans. Specifically, the Act 
contained language providing authority to make equity loans to farm 
labor housing borrowers under ``section 514(j)'' of the Housing Act of 
1949. However, section 514(j) of the Housing Act does not pertain to 
equity loans; it deals specifically with equity skimming penalties for 
farm labor housing borrowers who abuse rent receipts, physical 
property, etc. Since the Act did not provide clear authority for equity 
loans to farm labor housing borrowers, this provision could not be 
implemented.
    (4) Preventing equity skimming by project owners and managers. RHS 
has implemented numerous administrative measures to prevent owners and 
managers from defrauding the government by ``equity skimming'' 
(misusing rent receipts, physical property, and reserve accounts.) In 
addition, under current law, owners and managers found defrauding the 
government may be prevented from doing business with the federal 
government for a certain number of years (debarment). However, the 
administration of these measures varies from case to case and depends 
on the servicing arrangements between the government and the operator. 
The Act enhances the Agency's ability to deter waste, fraud, and abuse 
by making equity skimming a criminal offense, punishable by a fine of 
up to $250,000 or up to 5 years in prison, or both. This provision has 
been added to 7 CFR part 1930, subpart C, ``Management and Supervision 
of Multiple Family Housing Borrowers and Grant Recipients,'' and will 
provide a strong and consistent deterrent to defrauding the government.
    (5) Prioritization of Assistance. Prior to the passage of the Act, 
the Agency used a point system that heavily weighted proposals for 
projects in areas at least 20 miles from an urban center. This system, 
designed to ensure that truly rural areas receive housing assistance, 
was criticized for placing too much emphasis on the proximity of a 
community to an urban center and not fully reflecting a rural 
community's need for housing. The new legislation allows the Agency a 
more proactive role in selecting areas of greatest need based on 
specific criteria contained in the Act. The regulation, developed with 
input from program users, contains specific criteria and parameters for 
selecting areas, provides guidance on optional criteria permitted by 
the law, and establishes the timing for area selection and for 
selection of loans within such areas. The Agency has developed a 
ranking system for selecting and designating places for which loan 
requests will be invited, based on the following objective measures 
required by the Act: The incidence of poverty; the lack of affordable 
housing and the existence of substandard housing; the lack of mortgage 
credit; and the rural characteristics of the location. Loan requests 
received for designated places will be scored and ranked using 
objective criteria developed by the Agency. The highest ranked loan 
requests within the State's funding levels will be further processed.
    (6) Necessary Assistance. Responding to the concern that rural 
rental housing developers may be earning excessive profits through 
government subsidies, the reform legislation provides that the Agency 
can adjust the amount of its loan if excess assistance is being 
provided. RHS already has in place a provision that each State will 
enter into a memorandum of understanding (MOU) with state housing 
agencies agreeing to coordinate the award of program benefits. In 
developing regulations to implement the reform legislation, input was 
obtained from program users in determining appropriate caps to use for 
builder's profit, general overhead, and general requirements; 
calculation of a maximum allowable developer's fee; the timing of the 
determination of the amount of necessary assistance; and the process to 
be used in determining the amount of necessary assistance. The 
regulations will require an evaluation of the subsidy being provided to 
the proposed project, using a computer-based analysis. That evaluation 
will be shared with the state housing finance agency providing tax 
credits and with other participants in the financing of the proposal. 
If indicated by the evaluation, RHS will work with other participants 
to reduce their contribution, or as a final step, will reduce the 
amount of RHS resources to ensure that excess assistance is not 
provided.
    This rule also makes other minor revisions and clarifications of a 
housekeeping nature, such as correcting certain references to 
applicable Civil Rights legislation or regulatory cross-references.

Implementation Proposal

    This rule changes the manner in which multi-family housing loan 
requests are processed; adds provisions to ensure that the amount of 
assistance provided is no more than is necessary; reinforces the 
Agency's role in project transfers; eliminates the occupancy surcharge; 
revises the equity loan parameters; and institutes measures to prevent 
equity skimming. All provisions of the rule become effective the date 
of publication of this interim final rule. Loan requests on hand and 
existing loans will be reviewed for compliance with the revised 
regulations.
    Concurrently, upon publication of this rule, the Agency will 
discontinue its priority point system and change to a NOFA (Notice of 
Funds Availability) system which is published elsewhere in this issue 
of the Federal Register. Under the NOFA system, the amount of available 
funds and application deadlines will be announced each funding cycle in 
the Federal Register. Loan requests will be reviewed and selected based 
on objective criteria in accordance with the new regulations; loan 
requests not selected for funding will be returned to the applicant.
    The Agency intends to fund eligible loan requests on hand that were 
issued an AD-622, ``Notice of Preapplication Review Action,'' inviting 
a formal application prior to November 7, 1996 (the date Agency staff 
were advised that no further AD-622s be issued pending implementation 
of the new statutory provisions), in date order of complete application 
received, provided the applications comply with the new statutory 
requirements and are in designated areas in accordance with the new 
regulations. In these instances, the Agency will not invite further 
loan requests for designated areas where a loan request has been issued 
an AD-622. Since regulations in effect prior to this rulemaking action 
allowed States to authorize applications up to either 150 or 200 
percent of their annual allocation, existing applications will be 
considered until the beginning of FY 1999. At that time, any remaining 
outstanding applications authorized prior to November 7, 1996, which 
have not been reached for funding will be returned to the applicant.
    Loan requests that have been issued an AD-622 inviting a formal 
application that are not located in a designated place in accordance 
with the new requirements will be returned to the applicant. The Agency 
recognizes the impact on applicants thus affected; however, we are 
mandated by Congress to institute measures to ensure assistance is 
provided only to those rural areas with the greatest need.
    Loan requests on hand that have not been issued an AD-622 inviting 
a formal application will be returned to the applicant. Loan requests 
thus

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returned may, of course, be submitted for consideration with other loan 
requests when the availability of funds is announced, if they are 
located in communities on the State's list of designated places.

List of Subjects

7 CFR Part 1930

    Grant programs--housing and community development, Loan programs--
housing and community development, Low and moderate income housing, 
Reporting and recordkeeping requirements, Rural areas.

7 CFR Part 1944

    Administrative practice and procedure, Aged, Handicapped, Loan 
programs--housing and community development, Low and moderate income 
housing, Mortgages, Nonprofit organizations, Rent subsidies, Rural 
areas.

7 CFR Part 1951

    Accounting, Loan programs--agriculture, Loan programs--housing and 
community development, Low and moderate income housing, Mortgages, 
Reporting and recordkeeping requirements, Rural areas.

7 CFR Part 1965

    Low and moderate income housing, Mortgages, Reporting and 
recordkeeping requirements, Rural areas.

    Therefore, chapter XVIII, title 7, Code of Federal Regulations is 
amended as follows:
    1. 7 CFR chapter XVIII is amended by revising the word 
``preapplication'' to read ``loan request'' in the following places:

a. Part 1944, Sec. 1944.211(a)(13)(i)
b. Part 1944, introductory text of Sec. 1944.213(b)
c. Part 1944, Sec. 1944.213(d)(1)(i)
d. Part 1944, Sec. 1944.213(d)(1)(ii)
e. Part 1944, Sec. 1944.224(a)(4)
f. Part 1944, Sec. 1944.224(a)(6)
g. Part 1944, Sec. 1944.224(a)(7)
h. Part 1944, introductory text of Sec. 1944.235(h)
i. Part 1944, subpart E, Exhibit A, paragraph IV.B.4.
j. Part 1944, subpart E, Exhibit A, paragraph IV.B.22.
k. Part 1944, subpart E, Exhibit A-7, paragraph I.A.(4)
l. Part 1944, subpart E, Exhibit E, paragraph III
m. Part 1944, subpart E, Exhibit E, introductory text of paragraph V.A.
n. Part 1944, subpart E, Exhibit E, introductory text of paragraph V.B.
o. Part 1944, subpart E, Exhibit E, introductory text of paragraph V.D.
p. Part 1944, subpart E, Exhibit E, introductory text of paragraph V.E.
q. Part 1944, subpart E, Exhibit E, paragraph VII

    2. 7 CFR chapter XVIII is amended by removing the words ``, 
occupancy surcharge'' in the following places:

a. Part 1930, subpart C, Exhibit B, paragraph XIII.C.2.f(1)
b. Part 1951, Sec. 1951.517(b)(4)(i)(A)
c. Part 1951, Sec. 1951.517(b)(4)(i)(B)
d. Part 1951, Sec. 1951.517(b)(4)(ii)(A)
e. Part 1951, Sec. 1951.517(b)(4)(ii)(B)
f. Part 1951, Sec. 1951.517(b)(4)(iii)

    3. 7 CFR chapter XVIII is amended by removing the words ``and 
occupancy surcharge'' in the following places:

a. Part 1930, subpart C, Exhibit B, introductory text of paragraph 
XIV.A.5.b
b. Part 1930, subpart C, Exhibit B, paragraph XIV.A.5.b(1)(i)(A)--2 
times
c. Part 1930, subpart C, Exhibit B, paragraph XIV.A.5.b(1)(i)(B)
d. Part 1930, subpart C, Exhibit B, paragraph XIV.A.5.b(2)(vi)(A)--2 
times
e. Part 1930, subpart C, Exhibit B-1, paragraph 4.b
f. Part 1930, subpart C, Exhibit B-1, heading of paragraph 6
g. Part 1930, subpart C, Exhibit B-1, paragraph 6.a
h. Part 1930, subpart C, Exhibit E, paragraph II.A.2

    4. 7 CFR chapter XVIII is amended by removing the words ``or 
occupancy surcharge'' in part 1951, Sec. 1951.506(a)(3).
    5. 7 CFR chapter XVIII is amended by removing the words ``, as well 
as the occupancy surcharge'' in the following places:

a. Part 1930, subpart C, Exhibit B, paragraph XIV.A.5.b(1)(v)(C)
b. Part 1930, subpart C, Exhibit B, paragraph XIV.A.5.b(2)(iv)

PART 1930--GENERAL

    6. The authority citation for part 1930 is revised to read as 
follows:

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

Subpart C--Management and Supervision of Multiple Family Housing 
Borrowers and Grant Recipients

    7. Section 1930.105 is amended by revising paragraph (b)(10) to 
read as follows:


Sec. 1930.105  Objective of management and supervision.

* * * * *
    (b) * * *
    (10) Operate the facilities according to applicable Civil Rights 
laws, Title VI of the Civil Rights Act of 1964, Title 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.
* * * * *
    8. Section 1930.106 is added to read as follows:


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 multi-family 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.
    9. Subpart C, Exhibit B is amended in paragraph II by removing the 
definition of ``Occupancy surcharge'' and by removing the words ``, 
including occupancy surcharge,'' in the definition of ``Tenant 
contribution''; in paragraph V F 1 a by removing the last sentence; in 
paragraph V F 1 b by removing the last sentence; in paragraph VII F 6 
(c) in the second sentence by removing the words ``as well as maximum 
occupancy surcharge''; in paragraph VII F 6 d in the third sentence by 
removing the words ``and occupancy surcharges''; by removing paragraph 
VIII A 3; by redesignating paragraphs VIII A 4 through VIII A 8 as 
paragraphs VIII A 3 through VIII A 7 respectively; in the introductory 
text of paragraph VIII B by revising the words ``paragraphs 1, 4b, 4d, 
4e, 5, and 7'' to read ``paragraphs VIII B 1, VIII B 4 b, VIII B 4 d, 
VIII B 4 e, VIII B 5, and VIII B 7;'' in paragraph VIII B 4 by revising 
the word ``Occupancy'' to read ``Cooperative occupancy'' and by 
revising the words ``paragraphs VII B 4 b, d, and e'' to read 
``paragraphs VIII B 4 b, VIII B 4 d, and VIII B 4 e''; in paragraph 
VIII D 2 by removing the words ``, including occupancy surcharge 
levied, if any''; in paragraph XIII B 2 a (2) by removing the words 
``occupancy surcharge monies,''; in paragraph XIII B 2 a (3) by 
removing

[[Page 25066]]

the words ``including occupancy surcharge''; in paragraph XIV A 5 b (1) 
(i) (B) by removing the words ``or to pay the occupancy surcharge''; in 
paragraph XIV A 5 b (2) (vi) (B) by removing the words ``or the 
occupancy surcharge''; in paragraph XIV A 5 B(1)(I)(b) by removing the 
words ``or to pay the occupancy surcharge''; in paragraph XIV A 5 b (2) 
(vi) (C) by removing the words ``and reimbursement for occupancy 
surcharge''; and in paragraph II by revising the definition of 
``Shelter cost'' to read as follows:

EXHIBITS TO SUBPART C

* * * * *

EXHIBIT B--MULTIPLE HOUSING MANAGEMENT HANDBOOK

* * * * *
    II * * *
    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 change 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.
* * * * *
    10. Subpart C, Exhibit E is amended by revising paragraph II K to 
read as follows:
* * * * *

EXHIBIT E--RENTAL ASSISTANCE PROGRAM

* * * * *
    II * * *
    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 change in rental rates or utility 
allowances must be processed according to Exhibit C of this subpart.
* * * * *

PART 1944--HOUSING

    11. The authority citation for part 1944 is revised to read as 
follows:

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

Subpart E--Rural Rental and Rural Cooperative Housing Loan 
Policies, Procedures, and Authorizations

    12. Section 1944.205 is amended in the definition of ``Rural area'' 
by revising the words ``Sec. 1944.10 of subpart A of part 1944 of this 
chapter'' to read ``Sec. 3550.10 of this title'' and by adding in 
alphabetical order definitions to read as follows:


Sec. 1944.205  Definitions.

* * * * *
    Agency. The Rural Housing Service within the Rural Development 
mission area of the U.S. Department of Agriculture or its successor 
agency which administers Section 515 loans and Section 521 rental 
assistance.
* * * * *
    Census Designated Place (CDP). An unincorporated population center 
identified by the Census Bureau.
* * * * *
    Consolidated Plan. A plan developed by a community or state 
addressing community planning and development that is used to support 
requests for assistance from the Department of Housing and Urban 
Development.
* * * * *
    HUD. The U.S. Department of Housing and Urban Development.
* * * * *
    LIHTC. Low-income housing tax credits.
* * * * *
    MFH. Multi-Family Housing.
* * * * *
    NOFA. Notice of funds availability.
* * * * *
    RCH. Rural Cooperative Housing.
* * * * *
    RHS. Rural Housing Service.
    RRH. Rural Rental Housing.
* * * * *
    Section 515. Section 515 of title V of the Housing Act of 1949 (42 
U.S.C. 1485 et seq.).
* * * * *


Sec. 1944.213  [Amended]

    13. Section 1944.213 is amended in the introductory text of 
paragraph (b) in the second sentence by revising the words 
``Sec. 1944.231(k)'' to read ``Sec. 1944.231(h)'', and in the third 
sentence by removing the words ``Form AD-622, `Notice of Preapplication 
Review Action,' or any other''; in the introductory text of paragraph 
(d) in the first sentence by revising the words ``preapplication for a 
loan'' to read ``loan request'' and adding the words ``and the 
environmental requirements of part 1940, subpart G, of this chapter'' 
following the words ``of this subpart'' and in the second sentence by 
removing the word ``preapplication''; and by revising paragraph (a), 
the heading of paragraph (f), and paragraphs (f)(2)(i) and (f)(3) to 
read as follows:


Sec. 1944.213  Limitations.

    (a) Loan limits. The Agency must certify that assistance provided 
any housing project is not more than is necessary to make the project 
affordable to potential tenants and the Government. The applicant must 
disclose, during each stage of the process, all other assistance 
proposed for the project, including all other government assistance as 
defined in Sec. 1944.205.
    (1) Fee norms. RHS has established the fee norms below for purposes 
of analysis. The total of the three fees may not exceed 21 percent.
    (i) Builder's profit: up to 10% of the construction contract.
    (ii) General overhead: up to 4% of the construction contract.
    (iii) General requirements: up to 7 % of the construction contract.
    (iv) Developer's fee: up to 15% of the total development costs 
authorized for tax credit purposes on new construction or 
rehabilitation; up to 8% of the acquisition costs only for the 
acquisition rehabilitation costs.
    (2) Other fee norms. (i) RHS has established the new construction 
and rehabilitation fee norm for a developer's fee at up to 15% of the 
total development cost authorized for tax credit purposes. (A 
developer's fee is not an authorized Section 515 loan purpose.)
    (ii) For transfer proposals that include acquisition costs, RHS has 
established the developer's fee on the acquisition costs at up to 8% of 
the acquisition costs only when authorized by the state agency and only 
for tax credit purposes. (A developer's fee is not an authorized 
Section 515 loan purpose.)
    (3) Analysis of loan requests to determine the minimum amount of 
assistance.
    (i) The fee structure of the state agency administering low-income 
housing tax credits will be used in the RHS analysis of the amount of 
assistance that is necessary for a proposal.
    (ii) In all cases where the results of an analysis indicate that 
there will be excess assistance (defined as more than the lesser of 
$25,000 or 1 percent of the total development cost as authorized by the 
state agency), RHS will consult with the applicant, as well as with the 
state agency, to strive to reach an agreement for reducing the excess 
assistance.
    (iii) In the event that excess assistance is not reduced through an 
agreement with the applicant, RHS will adjust the amount of equity 
contribution by the amount of excess assistance (through the reduction 
of the loan) to ensure that assistance provided is not more than is

[[Page 25067]]

necessary to provide affordable housing after taking into account 
assistance from all Federal, state and local sources.
* * * * *
    (f) New loans in areas with RHS, the Department of Housing and 
Urban Development (HUD), or similar type rental housing assistance.
* * * * *
    (2) * * *
    (i) Another RRH or RCH loan request in the same market area has 
been selected for further processing; or
* * * * *
    (3) Status. When a loan proposal or project exists in the market 
area which meets any of the criteria in paragraph (f)(2) of this 
section, loan requests in the same market area will be returned to the 
applicant in accordance with Sec. 1944.231. This does not affect the 
processing of loan requests in other market areas.
* * * * *


Sec. 1944.215  [Amended]

    14. Section 1944.215 is amended in paragraph (a)(1) in the ninth 
sentence by removing the word ``preapplication'' and by revising the 
words ``in this paragraph'' to read ``in accordance with 
Sec. 1944.213(a)(1)(iii) and (a)(1)(iv)'' and by removing the last 
three sentences; in paragraph (r)(1) by adding the words ``, persons 
with disabilities,'' following the words ``elderly persons''; in 
paragraph (r)(2) by revising the words ``should promote an equal 
opportunity'' to read ``are to promote equal access''; in the 
introductory text of paragraph (r)(4) by revising the words ``priority 
points'' to read ``preference''; in paragraph (r)(4)(i) by revising the 
words ``meets all FmHA or its successor agency under Public Law 103-354 
site criteria'' to read ``meets the site criteria of this paragraph (r) 
and the environmental requirements of part 1940, subpart G, of this 
chapter''; in the last sentence of paragraph (r)(4)(ii) by revising the 
words ``additional priority points'' to read ``preference''; in 
paragraph (r)(4)(vii) by revising the words ``Sec. 1944.231(i)(6)'' to 
read ``Sec. 1944.231(e)''; and in paragraph (r)(7) by revising the 
words ``Sec. 1944.10 of subpart A of part 1944 of this chapter'' to 
read ``7 CFR 3550.10'', by revising the word ``preapplications'' to 
read ``loan requests'', and by removing the phrase ``, including rating 
and ranking for potential authorization''.


Sec. 1944.224  [Amended]

    15. Section 1944.224 is amended in the introductory text of 
paragraph (a)(5) in the second sentence by revising the words 
``paragraph III of exhibit J of subpart C of part 1930 of this 
chapter'' to read ``part 1930, subpart C, exhibit J, paragraph V, of 
this chapter''.
    16. Section 1944.228 is added to read as follows:


Sec. 1944.228  Ranking of rural places based on greatest need for 
Section 515 housing.

    The Agency will rank rural places based on greatest need for 
Section 515 housing in accordance with this section. Places may be 
incorporated population centers such as cities, boroughs, towns, and 
villages; or unincorporated population centers identified by the Census 
Bureau (known as Census Designated Places (CDPs)). States must be 
consistent state-wide in their use of place types that are included in 
the list of designated places. Ranking will be based on the following:
    (a) Qualifies as a rural area in accordance with 7 CFR 3550.10.
    (b) Lacks mortgage credit for borrowers in accordance with 
Sec. 1944.211(a)(2).
    (c) Demonstrates a need for multi-family housing based on the 
following factors, with equal weight given to each. Data for this 
purpose will be provided to States by the National Office from the most 
recent rural place data obtained from the Census Bureau. If Census data 
is not available for an eligible rural place, the State may request 
authority from the National Office to include the place on the list of 
designated places established in accordance with Sec. 1944.229, 
provided the place meets the requirements of Sec. 1944.229(b) and it 
can be demonstrated that there is a high need for assisted multi-family 
housing based on information obtained from reliable local or state 
sources. The State may request authority from the National Office to 
use other state-wide data if it is objective and consistent with the 
Housing Act of 1949, as amended.
    (1) The incidence of poverty, measured by determining households 
below 60 percent of the county rural median income.
    (2) The existence of substandard housing, measured by determining 
the number of occupied housing units that lack complete plumbing or 
have more than one occupant per room.
    (3) The lack of affordable housing, measured by determining 
households below 60 percent of county rural median income paying more 
than 30 percent of income in rent.
    17. Section 1944.229 is added to read as follows:


Sec. 1944.229  Establishing the list of designated places for which 
Section 515 applications will be invited.

    States will compile a list of designated places for which Section 
515 applications will be invited, in accordance with the provisions of 
this section and the ranking process described in Sec. 1944.228. 
Inclusion on the list of designated places does not indicate that 
market need and demand has been established; this will be a loan 
feasibility determination. Once placed on the list of designated 
places, places will be considered equal, with no regard to their 
ranking on the ranking list or order of selection. In exceptional 
circumstances, there may be an instance when a place with an urgent 
need for multi-family housing is not reflected in the ranking process 
in Sec. 1944.228; for example, a place that has had a substantial 
increase in income-eligible population since the most recent decennial 
Census data because of a new industry, a place that has experienced a 
loss of affordable housing because of a natural disaster, or a 
community within the limits of an Indian reservation or tribal alloted 
or trust land with a demonstrated need for multifamily housing. With 
concurrence from the National Office, the State may include the place 
on the list of designated places.
    (a) Establishing the number of designated places. Initially, the 
number of designated places may equal up to 5 percent of the state's 
total eligible rural places ranked in accordance with Sec. 1944.228, 
but must equal, in all cases, at least 10 places. For example, in a 
state with 1,000 total rural places, the State may designate up to 5 
percent, or 50 places. However, in a state with 60 total rural places, 
the State would use the minimum number of 10 places, since 5 percent of 
60 equals 3. In states where 5 percent equals more than the minimum 
number of 10, consideration in determining the number of places to 
include on the list should be given to the size and population of the 
state, funding levels, and the potential for leveraging. States that 
anticipate high loan activity because of leveraging may designate a 
number of places higher than 5 percent or the minimum 10 places with 
the concurrence of the National Office.
    (b) Requirements for inclusion on the list of designated places. 
Places selected for the list of designated places:
    (1) Must have 250 or more households as a minimum feasibility 
threshold for multi-family housing; and
    (2) May not have any of the ``build and fill'' conditions described 
in Sec. 1944.213(f)(2). Places thus identified will be deferred for 
inclusion on the current year's list of designated places. Deferred 
places will be reviewed annually and, at such time that the ``build and 
fill'' conditions no longer

[[Page 25068]]

exist, will be considered for inclusion on the list for the next fiscal 
year in accordance with this section. To the extent practicable, States 
will consult with HUD and other state or local agencies or entities 
that provide very low- or low-income rental housing to determine places 
where loan proposals have been approved or are in process.
    (c) Selection of designated places. Places meeting the requirements 
of paragraph (b) of this section will be selected from the ranking list 
as follows:
    (1) At least 90 percent of the State's total designated places must 
be selected in rank order from the list.
    (2) With concurrence from the National Office, up to 10 percent of 
the State's designated places may be selected in accordance with the 
following guidelines: Provided, That such places fall within the top-
ranked 10 percent of the state's total rural places (or a minimum of 20 
places) meeting the requirements of paragraph (b) of this section. For 
example, in a state with 1,000 total rural places, the State has 
elected to select designated places equal to the maximum 5 percent, or 
50 places. Of the 50 places, at least 90 percent, or 45 places, must be 
selected from the places that meet the requirements of paragraph (b) of 
this section in order of their ranking. Up to 10 percent, or 5 places, 
may be selected from the top-ranked 100 places (10 percent of the total 
rural places in the state) that meet the requirements of paragraph (b) 
of this section, as follows:
    (i) Places that provide geographic diversity in the state. Places 
thus selected must be the highest ranked place in each geographic 
division designated by the State. Geographic divisions must correspond 
with established State divisions, such as districts, regions, or 
servicing areas.
    (ii) Places that have been identified as high need areas for multi-
family housing in the state Consolidated Plan or similar state plan or 
needs assessment report.
    (d) Length of designation. Places will remain on the list of 
designated places for three years or until a loan request is selected 
for funding, whichever occurs first. A place where a loan request is 
selected for Section 515 funding will be reevaluated for potential 
inclusion on the next fiscal year's list of designated places when the 
complex is completed, in accordance with the ``build and fill'' 
provisions of Sec. 1944.213(f)(2). A place may be removed from the list 
prior to the end of the 3-year designation period because of a 
substantial loss of income-eligible population or an increase in the 
affordable rental housing supply, for example, a place that experiences 
the closing of a military base or other major employer.
    (e) List of designated places. A list of designated places may be 
obtained by contacting the State Office or any Rural Development office 
in the state.
    18. Section 1944.230 is added to read as follows:


Sec. 1944.230  Application submission deadline and availability of 
funds.

    (a) Application submission and funding cycle. Dates governing the 
submission and funding cycle of Section 515 loan requests will be 
published annually in the Federal Register and may be obtained from any 
Rural Development office.
    (b) Availability of funds. The amount of funds available for each 
State, as well as any limits on the amount of individual loan requests, 
will be published as a notice annually in the Federal Register.
    19. Section 1944.231 is revised to read as follows:


Sec. 1944.231  Processing loan requests.

    (a) Actions by the applicant. Loan requests may be submitted for 
designated areas when the availability of funds is announced. The loan 
request will consist of an application form prescribed by the Agency 
and the items listed in Exhibit A-7 of this subpart. If an application 
is selected, the applicant will be required to provide the additional 
items required by Exhibit A-9 of this subpart within the timeframes 
established by the Agency.
    (b) Actions by the Agency.--(1) Actions by the Agency on loan 
requests received. Loan requests received after the deadline announced 
in the Federal Register will not be considered for funding in that 
funding cycle and will be returned to the applicant.
    (2) Review and scoring of loan requests. Loan requests will be 
reviewed:
    (i) To determine if the loan request is complete and includes the 
additional information required in NOFA;
    (ii) To determine if the request is for an authorized purpose; and
    (iii) To establish a point score based on the following factors:
    (A) The presence and extent of leveraged assistance (including 
services, abatement of taxes, etc.) for the units that will serve RHS 
income-eligible tenants, not including tax credits or donated land. 
Scoring will be based on the presence and extent of leveraged 
assistance for each loan request compared to the other loan requests 
being reviewed, computed as a percent of the total development cost of 
the units that will serve RHS income-eligible tenants. A total monetary 
value will be determined for leveraged assistance in order to compare 
such items equitably with leveraged funds. As part of the loan 
application, the applicant must include specific information on the 
source and value of the services for this purpose. Proposals will then 
be ranked in order of the percent of leveraged funds and assigned a 
point score accordingly. (0 to 20 points)
    (B) The loan request is for units to be developed in a colonia, 
tribal land, or EZ/EC community, or in a place identified in the state 
Consolidated Plan or state needs assessment as a high need community 
for multi-family housing. (20 points)
    (C) The loan request is in support of a National Office initiative 
announced in NOFA. (20 points)
    (D) The loan request is in support of an optional factor developed 
by the State that promotes compatibility with special housing 
initiatives in conjunction with state-administered housing programs 
such as HOME funds or low income housing tax credits.
    A factor thus developed cannot duplicate factors already included 
in this paragraph and must be provided to the National Office prior to 
the funding cycle for concurrence and inclusion in NOFA. (20 points)
    (E) The loan request includes donated land meeting the provisions 
of Sec. 1944.215(r)(4). (5 points)
    (3) Point score ties and ranking of loan requests. Loan requests 
will be ranked in order of highest point score or, where there are 
point score ties, in order of highest point score and number assigned 
as follows:
    (i) If one of the same-pointed requests is from an entity meeting 
the requirements of paragraph (e) of this section, it will be denoted 
with a #1 following the point score. If two or more are from entities 
meeting these requirements, a lottery will be held. The first drawn 
request will be denoted #1, the second drawn #2, etc.
    (ii) After all requests from entities meeting the requirements of 
paragraph (e) of this section have been numbered, the next sequential 
number will be assigned to a loan request from an entity not meeting 
the requirements of paragraph (e) of this section. If there are two or 
more requests from entities not meeting the requirements of paragraph 
(e) of this section, a lottery will be held and each request numbered 
in the order it is drawn, beginning with the next sequential number.
    (4) Preliminary eligibility and feasibility review. In order of 
ranking, a preliminary review of eligibility and

[[Page 25069]]

feasibility will be made on the highest ranked requests, including:
    (i) A review of the preliminary plans and cost estimates.
    (ii) A market feasibililty review, including the Agency's review of 
the market, a review of HUD's (and similar lender's, if applicable) 
feedback on the market area, and a review to ensure compliance with the 
``build and fill'' provisions of Sec. 1944.213(f).
    (iii) A site visit and preliminary review to determine if the site 
criteria of Sec. 1944.215(r) can be met.
    (iv) A review of the Affirmative Fair Housing Marketing Plan.
    (v) Analysis of a current (within 6 months) credit report.
    (5) Selection of loan requests for further processing. The Agency 
will select loan requests for further processing from loan requests 
determined preliminarily eligible and feasible, in ranking order, 
taking into consideration the amount of available funds.
    (i) If any selected loan requests are later withdrawn, rejected, or 
delayed for a period of time that will not permit funding in the 
current funding cycle, the Agency will select additional loan requests 
in ranking order as funding levels permit. For this purpose, the State 
may keep the next highest ranked loan request until it is determined 
that all selected loan requests will be funded. Applicants whose loan 
requests are held for this purpose will be advised that their loan 
request was not selected but ranked sufficiently high to be retained in 
the event a selected request is withdrawn or rejected in the current 
funding cycle.
    (ii) Loan requests not funded in the funding cycle, including 
incomplete requests, or requests not meeting the requirements of 
Exhibit A-7 of this subpart or NOFA, will be returned to the applicant 
with the reason it was not considered.
    (c) Additional requirements for selected loan requests. For 
selected loan requests, the applicant must provide the additional 
information required by Exhibit A-9 of this subpart and any additional 
State requirements within the timeframes established by the Agency. If 
the applicant fails to meet established timeframes, the Agency may 
grant an extension if the delay appears reasonable and granting the 
extension will still permit funding of the loan request in the current 
funding cycle.
    (d) Site rejections. Site rejections will be handled as follows:
    (1) Applicants will be given 15 calendar days from the date of the 
Agency's site rejection letter to submit a new site option. If the 
applicant appeals the decision but submits a new site option within 15 
days, the new site option will be accompanied by a copy of their letter 
to the National Appeals Division withdrawing their appeal request. If 
the new site is acceptable, processing will continue. If the new site 
is not acceptable, the loan request will be rejected.
    (2) If the applicant does not submit a new site option within 15 
days, and has appealed the Agency's decision, the Agency will not delay 
processing of loan requests in other market areas pending the outcome 
of the appeal. The next ranked loan request, within available funding 
limits, will be selected for further processing.
    (3) If the applicant prevails in the appeal, the loan request will 
be considered in the next funding cycle. The applicant will be given 
the opportunity to amend their loan request consistent with NOFA.
    (e) Nonprofit or public body preference. Preference in ranking loan 
requests will be provided to an entity that meets all of the following 
conditions:
    (1) Is a local nonprofit organization, public body, or Indian Tribe 
whose principal purposes include the planning, development, and 
management of low-income housing;
    (2) Is exempt from Federal income taxes under section 501(c)(3) or 
501(c)(4) of the Internal Revenue Code (26 U.S.C. 501(c)(3) or 
501(c)(4));
    (3) Is not wholly or partially owned or controlled by a for-profit 
or limited-profit type entity;
    (4) Whose members, or the entity, do not share an identity of 
interest with a for-profit or limited-profit type entity;
    (5) Is not co-venturing with another entity; and
    (6) The entity or its members will not be receiving any direct or 
indirect benefits pursuant to LIHTC.
    (f) RCH loan requests. (1) Loan requests for RCH assistance will be 
processed in the order in which a complete loan request was received.
    (2) All loan requests for RCH assistance will be reviewed for 
eligibility and feasibility. In cases where the proposal is not 
eligible or feasible, the proposal will be rejected. Proposals which 
appear eligible and feasible will be forwarded to the National Office 
for review and authorization.
    (3) If authorized by the National Office, the State will notify the 
applicant that the proposal appears eligible and feasible. The 
applicant will be requested to provide the additional information 
required by Exhibit A-9 of this subpart and any additional State 
requirements.
    (4) If funds are not available in the current funding cycle, the 
loan request will be considered for funding in the next funding cycle.
    (g) General guidance on processing requests for Multi-Family 
Housing (MFH) Assistance. (1) All applicants must provide their 
taxpayer identification number. The taxpayer identification number for 
individuals who are not businesses is their Social Security Number.
    (2) A loan request for MFH assistance may be withdrawn upon written 
request of the applicant at any time. The Agency may withdraw a loan 
request for failure of an applicant to provide necessary information to 
process a request for assistance should the applicant fail to respond 
to a written request which provides the applicant with a reasonable 
time period to submit the information.


Sec. 1944.237  [Amended]

    20. Section 1944.237 is amended in paragraph (a) in the second 
sentence by revising the words ``be rated and ranked'' to read 
``compete for funding'' and by removing the words ``the priority point 
system contained in'', and in the last sentence by removing the words 
``under the priority point system''.
    21. Exhibit A of subpart E is amended in section IV. A. in the 
first sentence by revising the words ``When an applicant is authorized 
to submit a formal application'' to read ``When a loan request is 
selected for further processing''; in the introductory text of section 
IV. B. in the last sentence by revising the word ``preapplication'' to 
read ``loan request'' and the words ``when developing an application'' 
to read ``for loan requests selected for further processing''; and in 
section VIII in the contents listing for exhibit A-7 by revising the 
word ``Preapplication'' to read ``a Loan Request'', in the contents 
listing for exhibit A-9 by adding the word ``Additional'' before the 
word ``Information'', by removing the words ``with Application'', and 
by revising the word ``Loans'' to read ``Loan Requests'', and by 
removing and reserving the contents listing for Exhibit A-10; and by 
revising sections II. and III. to read as follows:

Exhibits to Subpart E

EXHIBIT A--HOW TO BRING RENTAL AND COOPERATIVE HOUSING TO YOUR TOWN

* * * * *

II. APPLYING FOR A LOAN

    A. An individual, organization, or group organizing to provide 
housing may contact any Rural Development office processing Section 
515 loan requests to obtain

[[Page 25070]]

information and necessary forms. The Section 515 program is 
administered by Rural Development's Rural Housing Service (RHS).
    B. Each funding cycle, RHS will publish in the Federal Register 
a notice of the availability of funds (NOFA) for Section 515 loans 
and a list of designated places (communities) for which loan 
requests may be submitted. The list of designated places is also 
available from any Rural Development office processing Section 515 
loan requests. Designated places are rural places identified by RHS 
as having the greatest potential need for Section 515 housing. 
Except in unusual circumstances, places are designated for a period 
of three years or until a loan has been selected for funding, 
whichever occurs first.
    C. Applicants must submit a loan request by the deadline 
announced in the Federal Register, and available in any Rural 
Development office, to be considered in the funding cycle. Section 
III of this exhibit provides information on the loan review and 
selection process. In addition, applicants are advised to read this 
subpart, which provides detailed information on the Section 515 
program.
    D. The loan request consists of SF-424.2, ``Application for 
Federal Assistance (For Construction),'' the supporting material or 
information listed in exhibit A-7 of this subpart, and any 
additional information required in NOFA. This information will 
enable the Agency to determine:
    1. The eligibility of the applicant;
    2. The feasibility (economic, environmental, and architectural) 
of the proposed housing;
    3. That prospective cooperative members have read and understand 
their responsibilities as outlined in ``What is Cooperative 
Housing?'' (available in any Rural Development office) before 
agreeing to a cooperative housing project;
    4. Whether the proposed housing can appropriately be financed by 
RHS; and
    5. Its Civil Rights impact.
    E. This information usually can be furnished by the applicant 
without hiring extensive professional services. However, fees for 
professional packaging services rendered to a nonprofit organization 
can be made a part of loan development costs.

III. REVIEW OF THE LOAN REQUEST

    A. Loan requests received by the deadline announced in the NOFA 
will be reviewed, scored, and ranked based on the loan selection 
criteria announced in the NOFA. Requests that rank sufficiently high 
will be reviewed for eligibility and feasibility.
    B. Upon completion of the loan review process, applicants will 
be advised of RHS' decision. Applicants whose loan requests are 
selected for further processing will be notified of the additional 
steps that need to be taken. Loan requests not selected for further 
processing in the current funding cycle will be returned to the 
applicant.
* * * * *
    22. Exhibit A-7 of subpart E is amended in the introductory text by 
removing the words ``(for preapplication submission)''; in paragraph 
I.A.(6) by removing the last sentence; in paragraph I.A.(7)(A) by 
removing the words ``preapplication or''; and by revising the heading 
of the exhibit and paragraphs IV.C. and VI to read as follows:
* * * * *

EXHIBIT A-7--INFORMATION TO BE SUBMITTED WITH A LOAN REQUEST FOR A 
RURAL RENTAL HOUSING (RRH) OR A RURAL COOPERATIVE HOUSING (RCH) 
LOAN

* * * * *
    IV. * * *
    C. The size and type of other facilities to be included in the 
project, such as laundry rooms, storage spaces, etc., and a 
justification for any related facilities to be financed wholly or in 
part by RHS funds.
* * * * *
    VI. Form RD 1940-20, ``Request for Environmental Information.''
* * * * *
    23. Exhibit A-9 of subpart E is amended by removing the 
introductory text; in paragraph 5 by revising the words ``since the 
applicant submitted the market analysis'' to read ``since the market 
analysis was completed''; by removing paragraph 15 and by redesignating 
paragraph 16 as paragraph 15; and by revising the heading of the 
exhibit and paragraph 10 to read as follows:
* * * * *

EXHIBIT A-9--ADDITIONAL INFORMATION TO BE SUBMITTED FOR RURAL 
RENTAL HOUSING (RRH) AND RURAL COOPERATIVE HOUSING (RCH) LOAN 
REQUESTS

* * * * *
    10. The applicant will submit all proposed agreements for 
architectural, engineering, and legal services.
* * * * *

EXHIBIT A-10--[REMOVED AND RESERVED]

    24. Subpart E, Exhibit A-10, is removed and reserved.

PART 1951--SERVICING AND COLLECTIONS

    25. The authority citation for part 1951 continues to read as 
follows:

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

Subpart K--Predetermined Amortization Schedule System (PASS) 
Account Servicing


Sec. 1951.504  [Amended]

    26. Section 1951.504 is amended by removing the alphabetic 
paragraph designations and placing the definitions in alphabetical 
order and by removing the definition for ``Occupancy surcharges''.


Sec. 1951.506  [Amended]

    27. Section 1951.506 is amended by removing paragraph (a)(5)(iv); 
by redesignating paragraph (a)(5)(v) as paragraph (a)(5)(iv); and in 
newly redesignated paragraph (a)(5)(iv) in the third sentence by 
removing the words ``, occupancy surcharges'' and in the fourth 
sentence by removing the words ``, occupancy surcharge''.


Sec. 1951.509  [Removed]

    28. Section 1951.509 is removed and reserved.

Exhibit B--[Removed and Reserved]

    29. Part 1951, subpart K, Exhibit B, is removed and reserved.

PART 1965--REAL PROPERTY

    30. The authority citation for part 1965 continues to read as 
follows:

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

Subpart B--Security Servicing for Multiple Housing Loans

    31. Section 1965.65 is amended by revising the introductory text of 
paragraph (a) to read as follows:


Sec. 1965.65  Transfer of real estate security and assumption of loans.

    (a) General. The transfer may be approved only if it is determined 
that the transfer would ensure the further availability of the housing 
and related facilities for very-low, low, and moderate income families 
or persons and would be in the best interests of the residents and the 
Federal Government.
* * * * *


Sec. 1965.68  [Amended]

    32. Section 1965.68 is amended by removing paragraph (c)(9).

Subpart E--Prepayment and Displacement Prevention of Multi-Family 
Housing Loans

    33. Section 1965.210 is revised to read as follows:


Sec. 1965.210  Loans approved prior to December 15, 1989--RHS actions 
when processing prepayment requests.

    For loans approved prior to December 15, 1989, that have not 
subsequently accepted prepayment incentives, the Servicing Office or 
other designated office must evaluate the need for the housing to 
determine the level of incentives to be offered, including equity 
loans, and whether the prepayment may be legally accepted with or 
without restrictive-use provisions. A reasonable effort must be made to 
enter into an agreement with

[[Page 25071]]

the borrower to maintain the housing for low-income use that takes into 
consideration the economic loss the borrower may suffer by foregoing 
prepayment. When developing an incentive offer, the Servicing Office or 
other designated office must first offer incentives other than equity 
loans, unless it is determined that alternative incentives are not 
adequate to provide a fair return to the borrower, prevent prepayment 
of the loan, or prevent displacement of the tenants. The guidance 
provided in Secs. 1965.213 and 1965.214 and Exhibit E of this subpart 
(available in any Rural Development State or District Office) will be 
used to determine the appropriate incentive package. Once an incentive 
offer has been accepted on a project, the project will be considered 
ineligible for future incentive offers until such time as the 
restrictive-use period associated with the incentive offer has expired.


Sec. 1965.213  [Amended]

    34. Section 1965.213 is amended by redesignating paragraphs (a), 
(b), and (c) as paragraphs (b), (c) and (d) respectively; and by adding 
a new paragraph (a) and by revising the introductory text of newly 
redesignated paragraph (b) and paragraph (b)(1) to read as follows:


Sec. 1965.213  Offer of incentives to borrowers.

* * * * *
    (a) Availability of incentives. Incentives may be offered only if 
the restrictive period has expired for any RRH project loan.
    (b) Available incentives. One or more of the following incentives 
will be offered to the borrower. The amount of incentives will be 
determined in accordance with Exhibits D and E of this subpart 
(available in any Rural Development State or District Office).
    (1) Equity loans. In RRH projects, a subsequent loan may be offered 
for equity for the difference between the current unpaid loan balance 
and a maximum of 90 percent of the project's value appraised as 
unsubsidized conventional housing. Equity loans may not be offered 
unless the servicing official determines that other incentives offered 
under this paragraph are not adequate to provide a fair return on the 
investment of the borrower, to prevent prepayment of the loan, or to 
prevent the displacement of project tenants.
* * * * *
    Dated: May 1, 1997.
Jill Long Thompson,
Under Secretary, Rural Development.
[FR Doc. 97-11817 Filed 5-6-97; 8:45 am]
BILLING CODE 3410-XV-U