[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
[[Page 35785]]
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
[[Page 35786]]
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