[Federal Register Volume 62, Number 127 (Wednesday, July 2, 1997)]
[Notices]
[Pages 35782-35786]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-17269]


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DEPARTMENT OF AGRICULTURE

Rural Housing Service


Notice of Availability of Funding and Requests for Proposals for 
the Section 538 Rural Rental Housing Guaranteed Loan Demonstration 
Program

AGENCY: Rural Housing Service, USDA.

ACTION: Notice.

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SUMMARY: The Rural Housing Service (RHS) announces the availability of 
the

[[Page 35783]]

Section 538 Rural Rental Housing Guaranteed Loan program on a 
demonstration basis. The intended outcome is to produce new affordable 
rental housing by inviting qualified lenders and eligible housing 
providers to propose rental complexes that will serve rural residents 
with low and moderate incomes. The 1996 demonstration resulted in the 
selection of 9 proposals providing 370 affordable units in 8 States. 
The purpose of this year's demonstration is to test program 
enhancements we are considering for incorporating into final program 
regulations.

DATES: The deadline for receipt of applications is 4 p.m., Eastern 
Daylight Savings Time on August 18, 1997. Applications received after 
such date and time will be returned. Lenders are encouraged to submit 
applications prior to August 18, 1997, as applications will be reviewed 
as they are received. If there are differences between any additional 
guidelines and this Notice, the requirements of this notice shall 
prevail. Notification of selected applications will be made by 
September 1, 1997. Commitments for guarantees will be issued on or 
before September 16, 1997. If RHS is unable to obligate section 538 
funds for guaranteed loans by September 16, 1997, any remaining section 
538 funds will be transferred for use prior to September 30, 1997, 
under the section 515 program. Qualified lenders may call the office of 
the Multi-Family Housing Processing Division of the Rural Housing 
Service, at 202-720-1604 for a copy of the application package. This is 
not a toll-free number. Hearing- or speech-impaired persons may access 
that number by calling toll-free the Federal Information Relay Service 
at (800) 877-8339.

ADDRESSES: Applications for participation in the demonstration program 
must be identified as ``Section 538 Demonstration Program'' on the 
envelope or wrapper and be submitted as follows: Director, Multi-family 
Housing Processing Division, Rural Housing Service, US Department of 
Agriculture, Room 5337 (stop 0781), 1400 Independence Ave., SW., 
Washington, DC 20250. Lenders shall submit an original (a FAX or E-mail 
copy is NOT acceptable) of the application to the above address by the 
application deadline.

FOR FURTHER INFORMATION CONTACT: Obediah G. Baker, Jr., Director, 
Multi-Family Housing Processing Division, US Department of Agriculture, 
South Agriculture Building, Room 5337 (stop 0781), 1400 Independence 
Ave., SW, Washington, DC 20250. Telephone: (202) 720-1604. (This number 
is not toll-free.) Hearing- or speech-impaired persons may access that 
number by calling toll-free the Federal Information Relay Service at 
(800) 877-8339.

SUPPLEMENTARY INFORMATION: On March 28, 1996, President Clinton signed 
the ``Housing Opportunity Program Extension Act of 1996,'' Public Law 
104-120. One of the actions was the authorization of the section 538 
Rural Rental Housing Guaranteed Loan Program. The program is intended 
to reach the needs of rural America by complementing the section 515 
Rural Rental Housing Direct Loan Program. It is anticipated that 
beneficiaries of the program will be rural residents with low and 
moderate incomes. The rural residents will be provided rental housing 
through the use of loan guarantees. Partnership opportunities exist to 
utilize the section 538 program with other affordable housing programs.
    In Fiscal Year (FY) 1997, the budget authority of $783,000 will 
provide up to approximately $25 million available under the section 538 
demonstration program. The Agency is currently developing regulations 
which will be based on information gathered during administration of 
the FY 1996 and 1997 demonstration programs.

I. Purpose and Program Summary

    Public Law 104-37 provided funds to the Department to implement a 
multifamily mortgage guarantee demonstration program subject to 
enactment of authorizing legislation. Public Law 104-120 provided 
authorization for that program with qualified lenders, the purpose of 
which is to demonstrate the effectiveness of providing new forms of 
Federal credit enhancement for the development of affordable 
multifamily housing by lenders.
    The program has been designed to increase the supply of affordable 
multifamily housing through partnerships between RHS and major lending 
sources, as well as State and local housing finance agencies and bond 
issuers. Qualified lenders will be authorized to originate, underwrite, 
and close loans for multifamily housing projects. Projects requiring 
new construction or acquisition with rehabilitation of at least $15,000 
per unit will be considered. RHS will guarantee such loans upon 
presentation and review of appropriate certifications, project 
information and satisfactory completion of the appropriate level of 
environmental review by RHS. Lenders will be responsible for the full 
range of loan management, servicing, and property disposition 
activities associated with these projects. The lender will be expected 
to provide servicing or contract for servicing of each loan it 
underwrites. RHS, in turn, commits to pay up to a maximum of 90 percent 
of the outstanding principal and interest balance in the case of 
default of the loan and filing of a claim, but in no event, not more 
than 90 percent of the original principal amount. Any losses would be 
based on a pro-rata split.

II. Eligible Housing and Tenants

    A loan may be guaranteed only if the loan is used for the 
development costs of housing and related facilities as such term is 
defined in 7 CFR 1944.205. Proposals must also meet the following 
criteria:
    (a) Occupancy Requirements. The housing must be available for 
occupancy only by low or moderate income families or persons, whose 
incomes at the time of initial occupancy do not exceed 115 percent of 
the median income of the area. After initial occupancy, a tenant's 
income may exceed these limits; however, rents, including utilities, 
are restricted to no more than 30 percent of the 115 percent of area 
Median Income for the term of the loan.
    (b) Location. Units must be located in areas considered eligible as 
defined in 7 CFR 3550.10 (not just the designated areas as defined in 7 
CFR 1944.228).
    (c) Minimum Complex Size. Apartment complexes must consist of five 
or more rental dwelling units. The site may consist of two or more 
noncontiguous parcels of land situated so as to comprise a readily 
marketable real estate entity within an area small enough to allow 
convenient and efficient management.
    (d) Types of Housing. For the purposes of the demonstration 
program, proposals for new construction or acquisition with 
rehabilitation of at least $15,000 per unit will be considered. 
Complexes may contain units that are detached, semi-detached, row 
houses, or multifamily structures. The portion of the guarantee funds 
for acquisition with rehabilitation is limited to 25 percent of the 
program authority.
    (e) Housing Standards. The standards established under 7 CFR 
1944.215 ``Special conditions,'' for housing and related facilities 
assisted under section 515, shall apply to housing and related 
facilities, the development costs of which are financed in whole or in 
part with a loan guaranteed under this program. The Agency will 
guarantee loans in which the fees and the proposed housing may exceed 
the amounts or size allowances and amenities contained in 7 CFR part 
1944,

[[Page 35784]]

subpart E provided such costs and features are generally found in 
similar housing proposals for similar income families in the market 
area. Such costs, features and amenities may include larger units, 
dishwashers, microwaves, increased and multi-purpose community spaces, 
and developer's fees. The proposals under this program will be subject 
to the Necessary Assistance Reviews discussed in 7 CFR 1944.213(a), see 
Federal Register Volume 62, Number 88, pages 25061-25071 published May 
7, 1997.
    (f) Tenant Protections. The standards for the treatment of tenants 
of housing developed using amounts from a loan guaranteed under this 
program shall incorporate standards for lease and grievance procedures 
and tenant appeals of adverse actions used under the section 515 Rural 
Rental Housing Program.
    (g) Fair Housing and Equal Opportunity. No person shall be 
subjected to discrimination because of race, color, religion, sex, 
disability, familial status, or national origin in the rental or 
advertising of rental dwellings, or in the availability of residential 
real estate related transactions involving RHS or housing in the Rural 
Development mission area. Borrowers and lenders must also comply with 
applicable Fair Housing and Equal Opportunity statutes.
    (h) Environmental. The environmental requirements established under 
7 CFR part 1940, subpart G, for housing and related facilities under 
the section 515 program shall apply to housing and related facilities 
under the section 538 program.
    (i) Preservation. The housing developed will remain available for 
occupancy as provided in paragraph II(a) of this notice, for the period 
of the original term of the loan guaranteed unless the housing is 
acquired by foreclosure (or instrument in lieu of foreclosure) or the 
Administrator waives the applicability of such requirement for the loan 
only after determining, based on objective information, that the 
following three circumstances exist:
    (1) There is no longer a need for low-and moderate-income housing 
in the market area in which the housing is located;
    (2) Housing opportunities for low-income households and minorities 
will not be reduced as a result of the waiver; and
    (3) Additional Federal assistance will not be necessary as a result 
of the waiver.

III. Loans Eligible for Guarantee

    (a) Eligible Borrowers. A loan guaranteed under this program may be 
made to a nonprofit organization, an agency or body of any State 
government or political subdivision thereof, or a private entity.
    (b) Loan Terms. Each loan guaranteed shall:
    (1) Provide for complete amortization by periodic payments to be 
made for a term not to exceed 40 years (480 equal amortized monthly 
installments);
    (2) Involve a fixed rate of interest agreed upon by the borrower 
and the lender that does not exceed the maximum allowable rate 
established by the Administrator. For purposes of the demonstration 
program, the maximum allowable rate is 200 basis points over the 30-
year Treasury Bond Rate as published in the ``Wall Street Journal'' as 
of the business day previous to the business day the rate is set. 
Priority will be given to proposals that are up to 150 basis points; a 
higher priority will be given to proposals with the lowest number of 
basis points;
    (3) Involve a principal obligation (including initial service 
charges, appraisal, inspection, and other reasonable fees) not to 
exceed:
    (i) In the case of a borrower that is a nonprofit organization or 
an agency or body of any State or local government, up to 97 percent of 
the development costs of the housing and related facilities or the 
value of the housing and facilities, whichever is less;
    (ii) In the case of a borrower that is a for-profit entity or other 
entity not referred to in paragraph III(b)(3)(i) of this notice, up to 
90 percent of the development costs of the housing and related 
facilities or the value of the housing and facilities, whichever is 
less;
    (iii) In the case of any borrower, for such part of the property as 
may be attributable to dwelling use, the applicable maximum per unit 
dollar amount limitations under section 207(c) of the National Housing 
Act; and
    (iv) In the case of a borrower utilizing Low Income Housing Tax 
Credits, a review will be conducted in conjunction with the applicable 
tax credit administration entity to determine if the proposal is in 
conformance with subsidy layering requirements at 7 CFR 1944.213, which 
stipulates that the government will provide no more than the minimum 
amount of assistance necessary to make the complex financially 
feasible.
    (4) Be secured by a first mortgage on the housing and related 
facilities for which the loan is made, or in the case where the loan 
upon which the RHS guarantee is requested is not the primary funding 
source, be secured by a parity lien;
    (5) May be a permanent loan or a combination construction and 
permanent loan. The agency will not guarantee a construction loan that 
will not be rolled into a permanent loan which will have an agency 
guarantee. For the construction loan, which may not exceed 12 months, 
the RHS guarantee will be limited to 60 percent of the work in place. 
For example: total construction advances for completed work of 
$1,000,000  x  60 percent would result in a $600,000 maximum guarantee 
on the work in place. RHS will also consider a higher level of 
guarantee (not to exceed 90 percent of the work in place) for 
construction contracts which are bonded or have letters of credit for 
advances, or both; and
    (6) For 20 percent of the loans made under this demonstration 
program, RHS shall provide the borrower with assistance in the form of 
interest credits to the extent necessary to reduce the rate of interest 
under paragraph III(b)(2) of this notice to the applicable Federal 
rate, as such term is used in section 42(I)(2)(D) of the Internal 
Revenue Code of 1986.
    (c) Refinancing of Loans Made Under the Program. Any loan 
guaranteed under the program may be refinanced and extended in 
accordance with the terms and conditions that the Agency shall 
prescribe, but in no event for an additional amount or term that 
exceeds the limitations under paragraph III(b) of this notice.
    (d) Nonassumption. The borrower under a loan that is guaranteed 
under this program and under which any portion of the principal 
obligation or interest remains outstanding may not be relieved of 
liability with respect to the loan, notwithstanding the transfer of 
property for which the loan was made. Loans guaranteed under this 
program may be made on a recourse or nonrecourse basis.
    (e) Issuance of Guarantee on Permanent Loans. Guarantees may be 
issued on permanent loans financing new construction once the final 
certificate of occupancy for the complex has been issued by the 
appropriate governmental body.
    (f) It is anticipated that complexes developed under this program 
may utilize other affordable housing programs such as the Low Income 
Housing Tax Credit, taxable bonds, HOME Investment Partnerships Program 
(HOME) funds, and other State or locally funded tenant assistance or 
grants. Tax-exempt financing is not

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eligible for a loan guarantee in this year's demonstration program.

IV. Guarantee Provisions

    (a) Lender eligibility. Those lenders currently approved and 
considered eligible by the Federal National Mortgage Association, the 
Federal Home Loan Mortgage Corporation, the Federal Home Loan Bank 
members, or the Department of Housing and Urban Development for 
guaranteed loan programs supporting multifamily housing will be 
considered approved lenders for this demonstration program. Lenders may 
use their own underwriting standards and loan terms and conditions with 
approval from RHS subject to statutory program constraints. In 
addition, State Housing Finance Agencies (HFAs) are also considered 
eligible lenders to participate in the demonstration program provided 
they demonstrate they have the ability to underwrite, originate, 
process, close, service, manage, and dispose of multifamily housing 
loans in a prudent manner. Other lenders have the opportunity to enter 
into a correspondent bank relationship with approved lenders in order 
to participate in the program.
    (b) Extent of Guarantee. RHS will guarantee repayment of an amount 
not exceeding 90 percent of the total of the amount of the unpaid 
principal and interest of the loan but, in all cases, not more than 90 
percent of the original principal amount. Any losses would be based on 
a pro-rata split. For example: Assume the Loan Amount and Total 
Development Cost are equal to $1,000,000  x  90 percent (For Profit 
Borrower)  x  90 percent Guarantee = $810,000 coverage. Assume the loan 
was liquidated and property sold for $600,000. The claim would be 
$900,000 - $600,000 = $300,000  x  90 percent = $270,000 maximum 
government payment on loss claim. The lender's loss would be $30,000.
    (c) Guarantee Fee. At the time of issuance of a loan guarantee 
under this program, RHS will collect a fee equal to 1 percent of the 
guaranteed principal obligation of the loan from the lender. RHS will 
also collect an annual servicing fee of 50 basis points (\1/2\ percent) 
based on the outstanding principal and interest of the guarantee 
portion of the loan on the first and subsequent anniversary of the 
promissory note.
    (d) Transferability of the Guarantee and Servicing. It is 
anticipated that loans guaranteed under this program may be sold into 
the secondary market. The guarantee and the servicing may be 
transferred, either combined or separated, to other eligible lenders 
with the written consent of RHS.
    (e) Payment Under Guarantee.
    (1) Notice of default. In the event of default by the borrower on a 
loan guaranteed under this program, the holder of the guarantee 
certificate for the loan shall provide written notice of the default to 
the Administrator.
    (2) Lenders will be required to discuss future servicing strategies 
with RHS prior to proceeding to liquidation. Before any payment under a 
guarantee is made, the holder of the guarantee certificate must exhaust 
all reasonable possibilities of collection on the loan.
    (3) Foreclosure. After receiving notice under paragraph IV(e)(1) of 
this notice and providing written notice of action to RHS, the holder 
of the guarantee certificate for the loan may initiate foreclosure 
proceedings, with the concurrence of RHS, in a court of competent 
jurisdiction, to obtain possession of the security property. After the 
court issues a final order authorizing foreclosure on the property, the 
holder of the certificate shall be entitled to payment by RHS under the 
guarantee upon:
    (i) Conveyance to RHS of title to the security property;
    (ii) Submission to RHS of a claim for payment under the guarantee; 
and
    (iii) Assignment to RHS of all the claims of the holder of the 
guarantee against the borrower or others arising out of the loan 
transaction or foreclosure proceedings, except claims released with the 
consent of RHS.
    (4) Acceptance of the Assignment by RHS. After receiving notice 
under paragraph IV(e)(1) of this notice, RHS may accept assignment of 
the loan if RHS determines that the assignment is in the best interests 
of the United States. Assignment of a loan under this paragraph shall 
include conveyance to RHS of all rights and interests arising under the 
loan, and assignment to RHS of all claims against the borrower or 
others arising out of the loan transaction. Upon assignment of a loan 
under this paragraph, the holder of a guarantee for the loan shall be 
entitled to payment by RHS under the guarantee. Upon payment, in whole 
or in part, to the holder, the note or judgment evidencing the debt 
shall be assigned to the United States and the holder shall have no 
further claim against the borrower or the United States.

V. Demonstration Selection Criteria

    (a) The Agency intends under the demonstration program to fund 
varying financing proposals to help determine the areas of need, the 
types of financing packages possible and the demand in the various 
eligible market areas. Selection of proposals under this demonstration 
program will be based on the following criteria:
    (1) Flexibility, innovation and variation of funding models.
    (2) Partnering and leveraging in order to develop the maximum 
number of housing units and promote partnerships with states, local 
communities, and other partners with similar housing goals. RHS 
participation loans and leveraging are encouraged.
    (3) No more than one viable application will be selected in any 
State (unless the number of viable applications are limited and 
sufficient funds remain to allow more than one application in any one 
State); and to increase the variety of experience under the 
demonstration, priority will be provided to those applications from 
States that have not previously received a commitment from the FY 1996 
demonstration program. The States that received a commitment from the 
FY 1996 demonstration program were Florida, Kansas, Missouri, Nebraska, 
North Carolina, Vermont, and West Virginia.
    (4) Priority will be provided to the proposals that set the 
interest rate up to 150 basis points over the 30 Year Treasury Rate; 
the lower the basis points, the higher the priority. However, the 
program will permit proposals that require 200 basis points over the 30 
Year Treasury Rate.
    (5) Administrator's discretion in order to effectively use funding 
to best explore program structure and effectiveness consistent with the 
best interests of the Government.
    (b) For 20 percent of the loans made under the demonstration 
program, RHS shall provide the borrower with interest credits to the 
extent necessary to reduce the rate of the loan to the applicable 
Federal rate. The maximum amount of loan guarantee is $1.5 million on a 
loan requesting interest credit. Proposals that could be viable with or 
without interest credits are encouraged to submit an application 
showing financial and market feasibility under either scenario. 
Applications proposing to receive interest credit will be selected 
using the following criteria:
    (1) Geographical location with emphasis on smaller rural 
communities versus larger rural communities.
    (2) The most needy communities based on census income data showing 
the preponderance of low and moderate income families.
    (3) Commitments by the applicant to maintain occupancy standards 
throughout the term of the loan for families with low and moderate

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incomes, with a priority at initial occupancy for low income families.
    (4) The lowest overall proportional effective subsidy cost to the 
Government.
    (5) Preference will be given to family proposals with large bedroom 
mixes (3/4/5 bedrooms).
    (6) Those proposals 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 multifamily 
housing will receive preference.

VI. Review Criteria

    RHS will review each request for participation under the 
demonstration program to determine if the lender and the proposal meet 
all the requirements of this notice and the lender demonstrates the 
ability to underwrite, originate, process, close, service, manage, and 
dispose of multifamily loans in a prudent manner. Applications will be 
reviewed to determine financial feasibility, compliance with cost 
limitations, and market need of the proposal. RHS will review each 
application for compliance with subsidy layering requirements, which 
stipulates that the government will provide no more than the minimum 
amount of assistance necessary to make the complex financially feasible 
pursuant to 7 CFR 1944.213(a)(2), see Federal Register Volume 62, 
Number 88, pages 25061-25071 published May 7, 1997.
    RHS also reserves the right to negotiate with potential lenders 
over the scope of the proposal to ensure the best interests of the 
Government and objectives of the demonstration program are achieved.
    It is the policy of RHS to consider environmental quality as equal 
with economic, social, and other relevant factors in program 
development and decision making. Proposals which have the potential for 
adverse impact to protected resources (wetlands, floodplains, and 
important farmland, for example) will receive low priority, since the 
brief period of time allocated for obligation of funds may be 
insufficient for RHS to satisfactorily complete the environmental 
review process if the proposal has adverse environmental impacts. 
Therefore, it is important that lenders and applicants submit proposals 
which minimize the potential to adversely impact the environment.
    Since RHS will complete the appropriate environmental review at the 
field level, the appropriate field office will need certain information 
from the lender or applicant in order to complete the environmental 
review. Lenders or applicants who plan to file an application should 
request the application package at the earliest date possible for 
directions on how to contact the applicable field office.

VII. Other Matters

    (a) Environmental Finding. A Finding of No Significant Impact with 
respect to the environment has been made in accordance with RHS 
regulations at 7 CFR part 1940, subpart G.
    (b) Civil Rights Impact Analysis. It is the policy within the Rural 
Development mission area to ensure that the consequences of any 
proposed project approval do not negatively or disproportionately 
affect program beneficiaries by virtue of race, color, sex, national 
origin, religion, age, disability, marital or familial status. To 
ensure that any proposal under this demonstration program complies with 
these objectives, the RHS approval official will complete Form RD 2006-
38, ``Civil Rights Impact Analysis Certification.''
    (c) Executive Order 12612, Federalism. The policies and procedures 
contained in this Notice will not have substantial direct effects on 
States or their political subdivisions, or the relationship between the 
Federal Government and the States, or on the distribution of power and 
responsibilities among the various levels of government. As a result, 
the Notice is not subject to review under the Order.
    (d) Paperwork Reduction Act. The information collection 
requirements within this notice are covered under OMB Nos. 0575-0042, 
0575-0047, 0575-100, 0575-0024, 0570-0014, and 0575-0137.

    Dated: June 25, 1997.
Jan E. Shadburn,
Acting Administrator, Rural Housing Service.
[FR Doc. 97-17269 Filed 7-1-97; 8:45 am]
BILLING CODE 3410-XV-U