[Federal Register Volume 76, Number 1 (Monday, January 3, 2011)]
[Rules and Regulations]
[Pages 1-5]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-33042]



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 Rules and Regulations
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  Federal Register / Vol. 76, No. 1 / Monday, January 3, 2011 / Rules 
and Regulations  

[[Page 1]]



DEPARTMENT OF AGRICULTURE

Rural Housing Service

7 CFR Part 3565

RIN 0575-AC80


Continuous Construction-Permanent Loan Guarantees Under the 
Section 538 Guaranteed Rural Rental Housing Program

AGENCY: Rural Housing Service, USDA.

ACTION: Final rule.

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

SUMMARY: The Rural Housing Service (RHS) (an agency within the Rural 
Development mission area) is amending its regulations to add an 
additional form of guarantee that is now available under its Guaranteed 
Rural Rental Housing Program. A single, continuous guarantee during the 
construction phase for construction advances and the permanent 
financing phase of the project (for loans that meet certain criteria) 
will now be provided in addition to the two existing forms of 
guarantees under the program. This action is taken to enhance 
efficiency, flexibility, and effectiveness in managing the program.

DATES: Effective Date: The final rule is effective on February 2, 2011.

FOR FURTHER INFORMATION CONTACT: Tammy S. Daniels, Financial and Loan 
Analyst, USDA Rural Development Guaranteed Rural Rental Housing 
Program, Multi-Family Housing Guaranteed Loan Division, U.S. Department 
of Agriculture, South Agriculture Building, Room 1271, STOP 0781, 1400 
Independence Avenue, SW., Washington, DC 20250-0781. E-mail: 
[email protected]. Telephone: (202) 720-0021. This number is 
not toll-free. Hearing or speech-impaired persons may access that 
number by calling the Federal Information Relay Service toll-free at 
(800) 877-8339.

SUPPLEMENTARY INFORMATION:

Classification

    This rule has been determined not to be significant for the 
purposes of Executive Order 12866 and, therefore, has not been reviewed 
by the Office of Management and Budget (OMB).

Executive Order 12988

    This rule has been reviewed under Executive Order 12988, Civil 
Justice Reform. If this rule is adopted: (1) Unless otherwise 
specifically provided, 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 except as specifically prescribed in 
the rule; and (3) the appeal procedures of the National Appeals 
Division (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, the 
Agency generally must prepare a written statement, including a cost-
benefit analysis, for 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 the Agency 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.

Executive Order 13132

    The policies contained in this rule do not have any substantial 
direct effect on States, on the relationship between the National 
government and States, or on the distribution of power and 
responsibilities among the various levels of government. Nor does this 
rule impose substantial direct compliance costs on State and local 
governments. Therefore, consultation with the States is not required.

Environmental Impact Statement

    This document has been reviewed in accordance with 7 CFR part 1940, 
Sec.  1940.310(e)(3). Rural Development has determined 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 (NEPA) of 1969, 42 U.S.C. 4321 et seq., an 
Environmental Impact Statement is not required. Loan applications will 
be reviewed individually to determine compliance with NEPA.

Regulatory Flexibility Act

    This rule has been reviewed with regard to the requirements of the 
Regulatory Flexibility Act (5 U.S.C. 601-612). The undersigned has 
determined and certified by signature of this document that this rule 
will not have a significant economic impact on a substantial number of 
small entities. This rule will affect both small and large entities in 
the same manner. This rule has no significant changes in information 
collection or regulatory requirements that would have a negative impact 
on either small or large entities in an economic way.

Programs Affected

    This program is listed in the Catalog of Federal Domestic 
Assistance under Number 10.438.

Intergovernmental Consultation

    For the reasons set forth in the Final Rule related Notice to 7 CFR 
part 3015, Subpart V, this program is subject to Executive Order 12372 
which requires intergovernmental consultation with State and local 
officials. The Agency has conducted intergovernmental consultation in 
the manner delineated in RD Instruction 1940-J (available in any Rural 
Development office).

Paperwork Reduction Act of 1995

    The information collection requirements contained in this 
regulation have been approved by OMB under the provisions of 44 U.S.C. 
chapter 35 and have been assigned OMB control number 0575-0174 in 
accordance with the Paperwork

[[Page 2]]

Reduction Act of 1995. No person is required to respond to a collection 
of information unless it displays a valid OMB control number.

E-Government Act Compliance

    Rural Development is committed to complying with the E-Government 
Act to promote the use of the Internet and other information 
technologies to provide increased opportunities for citizen access to 
Government information and services and for other purposes.

Background Information

    The Guaranteed Rural Rental Housing Program (GRRHP) currently 
offers two forms of guarantees: (1) A guarantee for permanent loans and 
(2) a guarantee which provides a limited duration guarantee for 
advances during the construction period with the limited duration 
provision being automatically removed if certain conditions are met. 
Under this final rule, the Agency creates, for loans meeting certain 
criteria and subject to the availability of funds, an option for a 
single, continuous guarantee during the construction phase for 
construction advances and the permanent financing phase of the project. 
This third option was created in response to input from GRRHP 
stakeholders who believe that this option will allow the program to 
serve more borrowers thus making affordable housing available for more 
low to moderate income families. This final rule also includes 
technical corrections and clarifications and removes the anachronistic 
requirement that lenders certify that their computer systems comply 
with year 2000 technology. The proposed rule can be found at 75 FR 
4707-4710. Additionally, this final rule removes the definition for 
``combination construction and permanent loan'' and added definitions 
for ``construction and permanent loan,'' ``construction contingency 
reserve,'' ``lease-up period,'' ``lease-up reserve,'' ``loan-to-cost 
ratio,'' and ``operating and maintenance reserve.''

Comments Received on the Proposed Rule

    On January 29, 2010, RHS (an agency within the Rural Development 
mission area) proposed an additional form of guarantee under the 
Guaranteed Rural Rental Housing Program regulation. The Agency received 
comments from five entities in response to the proposed rule. Comments 
were supportive of the new guarantee option offered in the proposed 
rule. One commenter stated that they supported the additional form of 
guarantee and applauded RHS' work in this area. The commenter believed 
the continuous guarantee will reduce the complexity of the program, 
making housing affordable for more low to moderate income families. 
Another commenter also stated that the continuous guarantee is a good 
idea and that it would provide a financing vehicle for additional 
multifamily housing construction. The Agency appreciates the support 
received from commenters in regard to the new continuous guarantee 
option. Specific comments were also received in three particular areas: 
Construction contingency reserve, the guarantee requirements, and the 
processing requirements. These comments are summarized below.

Construction Contingency Reserve

    Two comments were received regarding the construction contingency 
reserve. The first comment was related to the definition provided in 
the proposed rule which read: ``This reserve will be held by the lender 
and will only be disbursed for Agency and lender approved change order 
requests.'' The commenter's concern was that, as written, the language 
could be interpreted to mean that change order requests need only be 
approved by the Agency or the lender. The commenter recommended the 
language be rewritten to provide that the funds will only be disbursed 
for change order[s] requests that are approved by both the Agency and 
the lender. In response to this comment, the Agency has revised the 
definition to read: ``A cash reserve of at least two percent of the 
construction contract, inclusive of the contractor's fee and all hard 
and soft costs, which must be set up and fully funded by the closing of 
the construction loan. This reserve will be held by the lender, and 
funds will only be disbursed for change order requests approved by the 
Agency and the lender.''
    The second comment on construction contingency reserve stated that 
it would be useful to clarify the timing of the release of unused 
reserve funds as there are inconsistent interpretations among various 
State agencies. The commenter recommended releasing these funds at the 
same time that the 90/90 reserve funds are released. In response to 
this comment the Agency has revised the definition to clarify when the 
unused reserve funds will be released.

Guarantee Requirements

    The Agency received three comments regarding the guarantee 
requirements. One commenter recommended removal of the following 
language in Sec.  3565.52(c)(3) which the commenter viewed as 
unnecessary: ``Only projects that have low loan-to-cost ratio, as 
specified by the Agency in a Notice published periodically in the 
Federal Register, are eligible for this type of guarantee.'' The Agency 
believes this language serves the purpose of advising readers up front 
that specific eligibility criteria in relation to what constitutes low 
loan-to-cost ration is subject to change and appropriate notification 
will take place periodically in the Federal Register. Accordingly, this 
language was unchanged.
    The second commenter asked what is intended by the term ``low loan-
to-cost ratio'' in Sec.  3565.52(c)(3). The commenter further stated 
that this [achieving a low loan-to-cost ratio] should not be a problem 
for Low Income Housing Tax Credit properties but could be for other 
properties, and that RHS should not arbitrarily limit the availability 
of the new guarantee. In response to this comment, the Agency reserves 
the right in the regulation to periodically publish a threshold in the 
Federal Register to define the ratio that will be considered ``low''. 
The definition for ``loan-to-cost ratio'' was unchanged.
    The third commenter stated that it is not clear in the proposed 
rule how the required lease-up reserve (in Sec.  3565.52(c)(3)) will be 
calculated and expressed a concern that adding on a ``substantial'' 
lease-up reserve that must be funded up front (in Sec.  3565.52(e)(3)) 
is burdensome on the project and would make the program much less 
useful. Specific administrative guidance on calculating the lease-up 
reserve will be announced through a Notice in the Federal Register. 
Supplemental guidance will be included in HB-1-3565, the Guaranteed 
Rural Rental Housing Program Origination and Servicing Handbook 
(available in any Rural Development office), and will not be published 
in the rule. In response to the commenter's second concern, the Agency 
has revised the final rule to require that the lease-up reserve be 
funded 30 days before first Certificate of Occupancy is anticipated 
(rather than up front).

Processing Requirements

    In terms of processing requirements, the Agency received three 
comments. The first commenter asked that the word ``independent'' be 
removed from Sec.  3565.303(c)(3). Section 3565.303(c)(3) which states 
that inspections must be done by an ``independent'' inspector. The 
commenter stated the requirement is that the inspector must be 
``qualified.'' The Agency agrees that the inspector must be qualified 
to perform inspections but in order to avoid potential conflicts

[[Page 3]]

of interest; the inspector must also be independent and cannot be 
affiliated with the borrower or lender. This language remains in the 
rule.
    The second comment on this subject was to remove in Sec.  
3565.303(d)(4) the requirement regarding an as-built appraisal. The 
commenter recommended making this required under certain circumstances 
in order to reduce the number of exemptions that would need to be 
processed. In response, the Agency revised the final rule to clarify 
that the as-built appraisal is required only for Options 1 and 2, but 
not for Option 3 (the continuous guarantee).
    The final comment the Agency received on this subject was to change 
the requirement in Sec.  3565.303(d)(4)(iii) that the Agency's 
guaranteed loan balance not exceed 50% (in order to qualify for an 
exception to the as-built appraisal). The commenter recommended that 
this figure be revised to be 90%. The commenter's point was that if a 
construction loan can be done at 90% and then rolled into a permanent 
loan, there is no difference in risk, and loans with less leveraging 
can be more easily moved into the secondary market. As noted above, the 
as-built appraisal is required only for Options 1 and 2, but not for 
Option 3 (the continuous guarantee) so this provision does not apply.
    In addition, a conforming change has been added as section 
3565.303(f). Though the continuous guarantee will be seamless from the 
construction phase to the permanent financing phase, the loan must 
still be in compliance with 7 CFR part 3565. Section 3565.303(f) simply 
clarifies the specific requirements.

List of Subjects in 7 CFR Part 3565

    Bankruptcy, Banks, Banking, Civil rights, Conflict of interests, 
Credit, Environmental impact statements, Fair housing, Government 
procurement, Guaranteed loans, Hearing and appeal procedures, Housing 
standards, Lobbying, Low and moderate income housing, Manufactured 
homes, Mortgages, Real property acquisition, Surety bonding.
    Accordingly, chapter XXXV, title 7, Code of Federal Regulations is 
amended as follows:

PART 3565--GUARANTEED RURAL RENTAL HOUSING PROGRAM

0
1. The authority citation for part 3565 continues to read as follows:

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

Subpart A--General Provisions

0
2. Section 3565.3 is amended by removing the definition for 
``combination construction and permanent loan'' and by adding 
alphabetically definitions for ``construction and permanent loan,'' 
``construction contingency reserve,'' ``lease-up period,'' ``lease-up 
reserve,'' ``loan-to-cost ratio,'' and ``operating and maintenance 
reserve'' to read as follows:


Sec.  3565.3  Definitions.

* * * * *
    Construction and permanent loan. A loan which provides advances 
during the construction period and remains in place as a permanent loan 
at the completion of construction.
    Construction contingency reserve. A cash reserve of at least two 
percent of the construction contract, inclusive of the contractor's fee 
and all hard and soft costs that must be set up and fully funded by the 
closing of the construction loan. This reserve will be held by the 
lender, and funds will only be disbursed for change order requests 
approved by the Agency and the lender. Unused funds from the 
construction contingency reserve will be held in the operating and 
maintenance reserve and cannot be released to the borrower until the 
project reaches an occupancy of 90% for 90 consecutive days. In 
addition the reserve accounts established in the conditional commitment 
must be fully funded prior to the release of the construction 
contingency reserve. These requirements remain in effect regardless of 
whether the lender has established a lease-up reserve in lieu of the 
occupancy requirement.
* * * * *
    Lease-up period. The period of time that begins when the first unit 
in the project receives a certificate of occupancy until the time that 
occupancy of 90% of the units for a minimum of 90 consecutive days is 
achieved.
    Lease-up reserve. A cash deposit which is available to a property 
to help pay operating costs and debt service at the initiation of 
operations while units are being leased to their initial occupants.
* * * * *
    Loan-to-cost ratio. The amount of the loan divided by the total 
cost to develop the project.
* * * * *
    Operating and maintenance reserve. A cash reserve required of all 
projects of at least two percent of the loan amount held by the lender 
that is used for the up-keep of the project.
* * * * *

Subpart B--Guarantee Requirements

0
3. Section 3565.51 is revised to read as follows:


Sec.  3565.51  Eligible loans and advances.

    Upon approval of an application from an eligible or approved 
lender, the Agency will commit to providing a guarantee for a permanent 
loan or a construction and permanent loan, subject to the availability 
of funds.

0
4. Section 3565.52 is amended by revising paragraph (c) and adding new 
paragraphs (d) and (e) to read as follows:


Sec.  3565.52  Conditions of guarantee.

* * * * *
    (c) Types of guarantees. The Agency may provide a lesser guarantee 
based upon its evaluation of the credit quality of the loan. Penalties 
incurred as a result of default are not covered by the guarantee. The 
Agency liability under any guarantee will decrease or increase, in 
proportion to any increase or decrease in the amount of the unpaid 
portion of the loan, up to the maximum amount specified in the Loan 
Note Guarantee. The Agency will not guarantee construction loans only. 
The Agency offers the following types of guarantees:
    (1) Option One. The Agency may guarantee permanent loans subject to 
the conditions specified in Sec.  3565.303(d). The maximum guarantee 
for a permanent loan will be 90 percent [unless the Agency establishes 
a different percent and announces this different percent through a 
Notice in the Federal Register] of the unpaid principal and interest up 
to default and accrued interest 90 calendar days from the date the 
liquidation plan is approved by the Agency, as defined in Sec.  
3565.452.
    (2) Option Two. The Agency may provide a guarantee which will cover 
construction loan advances (advances) during construction. The maximum 
guarantee of construction advances related to a construction and 
permanent loan will not at any time exceed the lesser of 90 percent [or 
the percent established by the Agency and announced through a Notice in 
the Federal Register] of the amount of principal and accrued interest 
up to default for amounts which exceed the original advance if for 
eligible uses of loan proceeds or 90 percent of the original principal 
amount and accrued interest up to default of the loan. The Agency's 
guarantee will cover losses to

[[Page 4]]

the extent aforementioned once all sureties/insurances and/or 
performance and payment bonds have fully performed their contractual 
obligations. A construction contingency reserve is required. This 
guarantee will be enforceable during the construction period but will 
cease to be enforceable once construction is completed unless and until 
the requirements for the continuation of the guarantee contained in the 
Conditional Commitment and this part are completed and approved by the 
Agency by the date stated in the Conditional Commitment and any Agency 
approved extension(s). The Agency will provide written confirmation to 
the lender when all of the requirements for continuation of the 
guarantee to cover the permanent loan have been satisfied. Any losses 
sustained while the guarantee is unenforceable (after the end of the 
construction period and, if applicable, before the continuation of the 
guarantee) are not covered by the guarantee. For purposes of this 
guarantee, the construction period will end on the earlier of:
    (i) Twenty-four months from the closing of the construction loan, 
if the certificates of occupancy for all units in the project have not 
been issued by then, or
    (ii) The date of the issuance of the last certificate of occupancy, 
if the certificates of occupancy for all units in the project are 
issued on or before 24 months from the closing of the construction 
loan.
    (3) Option Three. The Agency may provide a single, continuous 
guarantee for construction and permanent loans. Only projects that have 
low loan-to-cost ratios, which will be defined by the Agency in a 
Notice published periodically in the Federal Register, are eligible for 
this type of guarantee. A construction contingency reserve is required. 
The Agency may require that a lease-up reserve, in an amount 
established by the Agency and announced through a Notice in the Federal 
Register, be set-aside prior to closing the construction loan. This 
lease-up reserve is an additional amount, over and above the required 
initial operating and maintenance contribution. The maximum guarantee 
of construction advances will not at any time exceed the lesser of 90 
percent [or the percent established by the Agency and announced through 
a Notice in the Federal Register] of the amount of principal and 
interest up to default advanced for eligible uses of loan proceeds or 
90 percent of the original principal amount and interest up to default.
    (d) Maximum loss payment. The maximum loss payment to a lender or 
holder is as follows:
    (1) To any holder, 100 percent of any loss sustained by the holder 
on the guaranteed portion of the loan and on interest due on such 
portion.
    (2) To the lender, the lesser of:
    (i) Any loss sustained by the lender on the guaranteed portion, 
including principal and up to 90 days of accrued interest as evidenced 
by the notes or assumption agreements and secured advances for 
protection and preservation of collateral made with the Agency's 
authorization; or
    (ii) The guaranteed principal advanced to or assumed by the 
borrower and any interest and accrued interest up to 90 days due 
thereon.
    (e) Funding of reserves. For each Option under paragraph (c) of 
this section, the lender must require an operating and maintenance 
reserve and provide the Agency adequate evidence of the funding of all 
required reserves.
    (1) For Option 1 under paragraph (c) of this section, the funding 
schedule for the lease-up reserve and the operating and maintenance 
reserve must be included in the Agency-approved construction budget and 
be fully funded before the issuance of the permanent guarantee.
    (2) For Option 2 under paragraph (c) of this section, the funding 
schedule for the lease-up reserve and the operating and maintenance 
reserve must be included in the Agency-approved construction budget and 
be fully funded before the issuance of the permanent guarantee.
    (3) For Option 3 under paragraph (c) of this section, the operating 
and maintenance reserve must be fully funded before the issuance of the 
guarantee. The lease-up reserve must be funded 30 days before the first 
Certificate of Occupancy is anticipated.

Subpart C--Lender Requirements


Sec.  3565.103  [Amended]

0
5. Section 3565.103 is amended by removing paragraph (d)(9).


Sec.  3565.106  [Amended]

0
6. Section 3565.106 is amended by removing the word ``combination.''

Subpart G--Processing Requirements

0
7. Section 3565.303 is amended by revising paragraphs (c) and (d) and 
adding paragraph (f) to read as follows:


Sec.  3565.303  Issuance of loan guarantee.

* * * * *
    (c) Guarantee during construction. When requesting a guarantee on 
construction loan advances under Sec.  3565.52(c)(2) and (c)(3), 
Options 2 and 3, the Agency will only issue a guarantee to an approved 
lender that the Agency determines is eligible under Sec.  3565.106 of 
this part.
    (1) This guarantee will be subject to the limits contained in 
subpart B of this part and in the loan closing documentation.
    (2) In all cases, the lender must obtain one of the following 
protections:
    (i) Surety bonding or performance and payment bonding acceptable to 
the Agency;
    (ii) An irrevocable letter of credit acceptable to the Agency; or
    (iii) A pledge to the lender of collateral that is acceptable to 
the Agency.
    (3) The lender must verify amounts expended prior to each payment 
for completed work and certify that an independent inspector has 
inspected the property and found it to be in conformance with Agency 
standards. The lender must provide verification that all subcontractors 
have been paid and no liens have been filed against the property.
    (d) Permanent loan guarantee. The guarantee of a permanent loan 
provided under Sec.  3565.52(c)(1) or (c)(2) will be issued once the 
following items have been submitted to and approved by the Agency:
    (1) Certification from the lender stating that the lender or its 
qualified representative inspected the property and found that the 
construction meets the Government's requirements for the standards and 
conditions for housing and facilities in 7 CFR part 1924, subpart A and 
the standards for site development in 7 CFR part 1924, subpart C, or 
its successor regulations;
    (2) Cash flow certification--the lender certifies, in writing, the 
project's cash flow assumptions are still valid and depict compliance 
with the section 538 program's debt service coverage ratio requirement 
of at least 1.15, based on the lender's analysis of current market 
conditions and comparable properties in the project's market area;
    (3) Documentation that either:
    (i) The project has attained a minimum level of acceptable 
occupancy of 90% for 90 continuous days within the 120-day period 
immediately preceding the issuance of the permanent guarantee, or
    (ii) Additional funds, supplementing the funds required under Sec.  
3565.303(d), have been added to the lease-up reserve in an amount the 
Agency determines is necessary to cover projected shortfalls.
    (4) A new appraisal based upon completion of construction. Upon a

[[Page 5]]

lender's written request, the Agency may exempt a project from this 
requirement if requested by the lender and the project meets the 
following criteria:
    (i) Original appraisal--the original appraisal that meets the 
Agency's appraisal requirements with a valuation date no older than 36 
months;
    (ii) Valuation--the appraisal's lowest valuation, regardless of 
valuation approach and rent restrictions considered, is greater than 
the section 538 guaranteed loan amount; and
    (iii) Guaranteed loan balance--the Agency's guaranteed loan's 
principal balance does not exceed 50 percent [unless a different 
percent has been announced in a Notice published in the Federal 
Register] of the project's total development costs.
    (5) A certificate of substantial completion;
    (6) A certificate of occupancy or similar evidence of local 
approval;
    (7) A final inspection conducted by a qualified Agency 
representative;
    (8) A final cost certification in a form acceptable to the Agency;
    (9) A submission to the Agency of the complete closing docket;
    (10) A certification by the lender that the project has reached an 
acceptable minimum level occupancy;
    (11) An executed regulatory agreement;
    (12) The Lender certifies that it has approved the borrower's 
management plan and assures that the borrower is in compliance with 
Agency standards regarding property management contained in subparts E 
and F of this part;
    (13) Necessary information to complete an updated necessary 
assistance review by the Agency under Sec.  3565.204(c); and
    (14) Compliance with all conditions contained in the conditional 
commitment for guarantee.
* * * * *
    (f) Continuous Guarantee Compliance. The continuous guarantee will 
remain in effect once construction is completed. In order to remain in 
compliance with 7 CFR part 3565, the following items must be submitted 
to and approved by the Agency. These items will be submitted to the 
Agency by the date stated in the Conditional Commitment and any Agency 
approved extension(s).
    (1) Certification from the lender stating that the lender or its 
qualified representative inspected the property and found that the 
construction meets the Government's requirements for the standards and 
conditions for housing and facilities in 7 CFR part 1924, subpart A and 
the standards for site development in 7 CFR part 1924, subpart C, or 
its successor regulations;
    (2) Cash flow certification--the lender certifies in writing the 
project's cash flow assumptions are still valid and depict compliance 
with the section 538 program's debt service coverage ratio requirement 
of at least 1.15, based on the lender's analysis of current market 
conditions and comparable properties in the project's market area;
    (3) Documentation that either:
    (i) The project has attained a minimum level of acceptable 
occupancy of 90% for 90 continuous days within the 120-day period 
immediately preceding the issuance of the permanent guarantee, or
    (ii) Additional funds, supplementing the funds required under Sec.  
3565.303(d), have been added to the lease-up reserve in an amount the 
Agency determines is necessary to cover projected shortfalls.
    (4) An appraisal of the property;
    (5) A certificate of substantial completion;
    (6) A certificate of occupancy or similar evidence of local 
approval;
    (7) A final inspection conducted by a qualified Agency 
representative;
    (8) A final cost certification in a form acceptable to the Agency;
    (9) A submission to the Agency of the complete closing docket;
    (10) A certification by the lender that the project has reached an 
acceptable minimum level occupancy;
    (11) An executed regulatory agreement;
    (12) The Lender certifies that it has approved the borrower's 
management plan and assures that the borrower is in compliance with 
Agency standards regarding property management contained in subparts E 
and F of this part;
    (13) Necessary information to complete an updated necessary 
assistance review by the Agency under Sec.  3565.204(c); and
    (14) Compliance with all conditions contained in the conditional 
commitment for guarantee.

Subpart J--Assignment, Conveyance, and Claims


Sec.  3565.457  [Amended]

0
8. Section 3565.457 (c)(1)is amended in the first sentence by removing 
the word ''collectibility'' and adding ``collectability'' in its place.

    Dated: December 3, 2010.
Tammye Trevi[ncaron]o,
Administrator, Rural Housing Service.
[FR Doc. 2010-33042 Filed 12-30-10; 8:45 am]
BILLING CODE 3410-XV-P